India's new labour codes, effective from November 21, 2025, bring significant changes to layoff rules for companies, impacting both employers and employees. These codes consolidate 29 central labor laws into four comprehensive codes, streamlining regulations and aiming to promote ease of doing business while safeguarding workers' rights. The key changes primarily stem from the Industrial Relations Code, 2020.

Increased Threshold for Layoffs

One of the most notable changes is the increased threshold for prior government approval for layoffs, retrenchment, and closures. Previously, establishments with 100 or more workers were required to seek government permission before undertaking such actions. The new codes raise this threshold to 300 workers. This means companies with up to 299 employees can now implement layoffs without needing government approval. However, state governments have the flexibility to raise this limit even further.

Impact on Businesses

This change provides businesses with greater flexibility in managing their workforce and adapting to market conditions. It is expected to reduce procedural bottlenecks and simplify compliance, contributing to formalization. The move aims to encourage businesses to scale up operations without the fear of cumbersome regulatory hurdles. However, some experts caution that this increased flexibility for companies might not necessarily prevent layoffs and could potentially drive up operational costs, affecting overall employment levels. Trade unions have also expressed concerns that the relaxed norms could lead to easier hiring and firing practices.

Worker Re-Skilling Fund

To support workers affected by retrenchment, the new labor codes introduce a "re-skilling fund". Employers are now required to contribute an amount equal to 15 days' last drawn wages for every retrenched worker to this fund. This contribution must be made within 45 days of the retrenchment. The fund aims to provide financial assistance to retrenched workers and facilitate their re-skilling to enhance their employability.

Fixed-Term Employment

The Industrial Relations Code, 2020 formalizes Fixed Term Employment (FTE), allowing companies to hire employees on fixed-term contracts. FTE workers are entitled to the same wages, benefits, and working conditions as permanent employees. Gratuity eligibility for FTE employees now kicks in after one year of continuous service, compared to the previous requirement of five years for regular employees. This provision aims to reduce excessive contractualization and offer cost efficiency to employers.

Definition of Strike

The new codes amend the definition of a strike to include "mass casual leave," where more than 50% of workers take casual leave on a given day. A mandatory 14-day strike notice is also required to prevent sudden disruptions. These changes aim to promote industrial harmony and discourage flash strikes.

Other Key Provisions

• Uniform Definition of Wages: The codes establish a uniform definition of "wages" across all labor codes, ensuring that basic pay, dearness allowance, and retaining allowance constitute at least 50% of total remuneration. This change impacts the calculation of social security benefits and gratuity.
• Social Security for Gig Workers: The codes extend social security benefits to gig workers and platform workers. Aggregators may be required to contribute 1-2% of their annual turnover towards gig workers' social security, capped at 5% of the total payments to platform workers.
• Gender Equality: The new codes mandate gender equality, prohibiting discrimination in hiring, wages, or employment terms for similar work.
• Universal Minimum Wages: The codes introduce universal minimum wages for all employees across organized and unorganized sectors. The government will set a statutory floor wage based on minimum living standards, and states cannot fix wages below this benchmark.

The implementation of these new labor codes marks a significant shift in India's labor landscape. While they aim to simplify compliance and provide businesses with greater flexibility, they also introduce measures to protect workers' rights and enhance social security. However, some experts remain cautious about the potential impact on job security and overall employment levels.