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From 29 tangled laws to 4 clear codes — why simplification matters

India’s new labour codes were finally (finally!) made effective, only six years after being enacted. Some are touting this as the biggest reform since GST, maybe even bigger. Like GST, it impacts every enterprise or business; but it also directly impacts every employee.

However, two things stand out for me: simplification and wage uniformity. Given the complexity of changes, I’ve broken down this story into three parts, and this article comprises the first part:

1. Simplification: Benefits to business
2. Wage Uniformity: Benefits to all employees
3. Labour Laws: The road ahead

To understand why simplification is such a big deal, consider that Indian companies are regulated by no less than 29 different labour or employment laws. Some of these like the Payment of Wages Act (1936), pre-date independent India. Newer laws often overlap and even contradict earlier laws, and instead of updating and simplifying, they kept adding new laws. Each created more confusion.

So for instance, there are maybe ten (or more) different definitions of the word “wages”. The PF Act applies to basic “wages”, excluding allowances. Other laws like Payment of Wages Act, Gratuity Act and Bonus Act had different definitions, with some allowances included, but not the same ones. The Minimum Wages Act thought differently, and different states had their own interpretation. This created massive confusion while calculating eligibility or benefits like PF, Gratuity, Bonus, etc. 

On top of contradictory wage definitions, wage ceilings were created – so Bonus Act is applicable only up to a certain wage, while ESI applies below a certain wage. More confusion.

Naturally, some companies tried to “optimize” payments and compliance. Others were simply, lost in the maze. All this led to huge litigation. Contradictory rulings in various tribunals and courts compounded the issue.

The new codes aim to create a single, consistent definition of what your wage really is, and how benefits are to be calculated.

As regards working conditions, The Factories Act dates back to 1948 (yes!), but excluded non-factory workers. So they passed another law for Plantation Labour, then Mines, Motor Transport Workers and one for Cine Workers. Even the Beedi and Cigar workers got their own Act! Journalists were somehow a favoured bunch – they have two laws protecting them!

There are more, trust me – thirteen in all. Including the Sales Promotion Workers Act.

So if you run a mine, steel plant, and own trucks; you will have to comply with multiple, conflicting laws and deal with a plethora of inspectors, all of whom can trouble you if they so desire.

The definitions of “establishments” under the Shops & Establishments Acts varied by state, and are often inconsistent with the Factories Act. The PF Act & ESI Act in their great wisdom, added new definitions.

These are only a few examples of the dystopia created by overlapping definitions and laws. Each Act created their own rules, eligibility criteria, and Inspection Raj. Some Central government, others state bodies. So if you operate across India, you might be dealing with a hundred-plus inspectors. And all asking you to fill similar data in different formats (and fonts) across differing time periods! Crazy, what!

Needless to say, each interaction increased business friction and created opportunities for a good side income for lot of people. Labour consultants and agents thrived.

None of this really did anything to improve worker conditions or pay. Getting your money back from PF is a nightmare. Contract workers rights are not properly defined or protected, due to conflicting regulations. Completely new categories like gig workers now number in millions, but are not protected by any laws.

At the same time, the excessive compliance pains and harassment overheads have meant a reluctance to hire freely. Smaller companies suffered much more, as they weren’t equipped to handle all this bureaucracy. And many of them eventually found ways to evade or avoid some compliance or the other.

In the end, nobody (except rent-seekers, consultants and middlemen) gained. Employees and employers both suffered, as did our economy.

The new codes promise fewer and easier compliances, integrated and digital reporting, transparency and clarity in benefit payments. Compliance costs will fall, while costs of non-compliance will rise.

There’s still a way to go, but the intent is great – and when implemented, these new labour codes will give a huge boost to “ease of doing business”. And this isn’t just administrative spring cleaning—it changes how India hires, pays, and protects its workers. (More in Part 2)