India’s New Labor Codes are set to bring a change in the lives of more than 50 crore workers by rewriting the rules related to salary, working time, social security and workplace conditions. But three reforms are very important for the workers: retaining the gratuity limit at Rs 20 lakh, maintaining double overtime salary and providing 1 day leave after every 20 days of work only after 180 working days. 29 labor laws have been included in the new labor codes. The four labor codes include Salary Wages, 2019, Industrial Relations Code, 2020, Social Security Wages, 2020 and Occupational Safety, Health and Working Conditions Code, 2020.
The labor ministry said this landmark reform streamlines compliance, modernizes outdated provisions, and creates a simple, efficient framework that promotes ease of doing business while protecting the rights and welfare of workers. Although the four labor codes cover a wide range of reforms, all three directly impact the daily life, financial security and welfare of employees in the organized and unorganized sectors. If we talk about those three reforms, they will greatly impact more than 50 lakh employees of the country.
Tax free gratuity of Rs 20 lakh
The limit of tax free gratuity has been kept at Rs 20 lakh only. This reform applies to all establishments covered under gratuity laws and is especially meaningful for employees who are in the latter stages of their careers. The gratuity limit of Rs 20 lakh is the tax exemption limit for gratuity payments received by an employee, which was increased from Rs 10 lakh in 2018. This means that any gratuity amount exceeding the limit of Rs 20 lakh will be added to your taxable income and taxed as per your income tax slab.
Gratuity period has been reduced from 5 years to 1 year. Employees in organized and unorganized sectors will now be eligible for gratuity payment on completing 1 year of service in their organization. Earlier, 5 years of service was mandatory to be eligible for gratuity. Fixed-term employees are now eligible for gratuity even without the five-year service condition, making this benefit more inclusive.
1 day off for every 20 working days
Under the Occupational Safety, Health and Working Conditions (OSH) Code, the government has made it easier for employees to accrue paid leave. Under which two major changes have emerged.
Leave entitlement after 180 days instead of 240 days
Earlier, an employee had to complete 240 working days to be eligible for annual leave. Now, eligibility will start from 180 days, allowing new employees to get leave benefits sooner. You will get one day leave for every 20 days of work. Employees will now accrue leave at the rate of 1 day for every 20 days worked, making leave accrual faster and fairer. This reform will be especially beneficial for contract workers, seasonal workers, migrant workers.
double overtime salary
Perhaps one of the most impactful reforms for daily salaried and industrial workers is the strengthening of overtime laws. Under the new labor codes, any work done in excess of prescribed working hours must be paid at double the normal wage rate. The employer will have to keep a transparent record of overtime. Workers cannot be made to work overtime without their consent. Double-rate overtime has long existed in theory, but its enforcement was weak and inconsistent. With clear provisions, strict compliance systems and web-based inspection mechanisms, workers now have a strong legal claim to fair overtime compensation. In industries that regularly depend on long shifts – manufacturing, textiles, logistics, security services, hospitality – this reform will significantly impact wage payments.
Minimum salary security for all
- A national minimum wage to avoid regional disparities
- Minimum wage revision every five years
- Equal pay for men and women
- Compulsory timely payment of salaries
- This ensures that gig workers, platform workers, daily wage laborers and workers working in small shops or establishments are also not deprived of wage security.
Strong Social Security Coverage
- ESIC coverage expanded from 566 districts to all districts
- EPF benefits for organized, unorganized and self-employed workers
- A national database of unorganized workers for easy benefit distribution
- A new social security fund for gig and platform workers
- These changes are aimed at ensuring that informal workers also have structured financial security.