Labour reforms: How to convince workers that today’s pay cheque matters less than tomorrow’s security

For a nation struggling to formalize a vast and disparate workforce, this move promises simplification, universal coverage and better alignment between employer compliance and worker welfare. It marks a leap towards a predictable, dignity-assuring and future-ready labour ecosystem.

However, the efficacy of any legislation is measured not by its legislative elegance, but by its behavioural implementation. While the codes were designed to formalize informal work and empower the vulnerable—through minimum wages, the inclusion of gig and platform workers under the social security umbrella, etc—their adoption is unlikely to be free of friction.

Immediate resistance may arise not from employers faced with a higher compliance burden, but from workers who the law seeks to protect.

At the heart of this challenge lies a shift in the definition of ‘wages’ under the Code on Social Security (2020), which mandates that allowances cannot exceed 50% of total remuneration. Consequently, at least half of an employee’s salary must now be classified as basic wages for calculating statutory benefits such as the Employees’ Provident Fund (EPF), Employees’ State Insurance Coverage (ESIC) and gratuity.

For millions of organised-sector workers, this may translate into a perceptible reduction in monthly take-home pay. Should an employer’s total cost remain unchanged, the employee will see higher statutory deductions eating into current consumption.

Resentment is understandable: humans value a rupee today more than a rupee two decades hence. Current household expenses weigh more heavily than the abstract promise of a distant retirement corpus.

This is a classic instance of hyperbolic discounting—immediate pain outweighing long-term gain—coming into conflict with well-intentioned policy design. The codes enhance long-term financial security, but require a short-term psychological and financial adjustment that may feel painful.

To overcome this drag, both government and industry must move beyond compliance rhetoric to a strategy rooted in empathetic communication. The Centre must act as an educator.

Public messaging should shift the narrative from ‘mandatory deductions’ to ‘compulsory savings for life security,’ highlighting the tangible benefits of formalization: gratuity eligibility after just one year of work for fixed-term employees, universal health coverage under ESIC, portability of benefits, predictable dispute resolution and the creation of a Reskilling Fund to protect workers during industrial transitions.

Employers, meanwhile, must make the promise of social security visible. They could issue personalized annual statements—ideally handed over in a small celebratory event—showing contributions made by both the employer and employee to PF, ESIC and other schemes. These documents would make such holdings look tangible, and a visibly growing PF corpus could offset any sense of proximate loss.

Crucially, employers must view the codes as a gain rather than a loss for themselves. Job security and social protection are deeply linked to productivity; the codes offer companies a chance to strengthen their psychological contract with employees.

When workers know their future is more secure, their family is covered and disputes can be resolved smoothly, their commitment to the organisation rises. This reduces absenteeism, enhances productivity and delivers a human capital dividend. Labour is no longer a transactional cost, but a protected and steadily appreciating asset.

A ‘loss frame,’ in contrast, may push employers to circumvent compliance costs by shifting to capital-intensive technologies. For a country with India’s demographic profile, this would be counterproductive. To prevent it, skilled, stable labour needs to be more cost-effective than automation. The Industrial Relations Code ups the approval-free retrenchment limit from firms with 100 workers to 300, offering larger employers workforce flexibility, but meaningful investment in worker skills could ensure that labour continues to offer an advantage.

India’s global competitiveness should not rest on the fragile logic of cheap labour. It must be anchored in a highly productive and socially protected workforce. The codes provide a transition pathway. Global investors increasingly seek countries with predictable regulatory environments and responsible labour practices. With proper code implementation, India’s competitive advantage should shift from low wages to strong labour relations and a future-ready workforce.

The codes are not merely statutory rules; they represent a new social contract between the state, industry and workers. Their success depends on workers being seen not as a compliance burden but as a primary engine of growth. The task now is to bridge gaps between policy intent and human perceptions.

Empathetic and well-designed communication can help ensure that the pain of slightly lower takehome pay today is willingly accepted in lieu of a more secure future. The final test of these reforms lies in whether they can embed the principle of universal labour dignity deeply enough to support a fast-modernizing economy.

These are the author’s personal views.

The author is professor, economics and executive director, Centre for Family Business & Entrepreneurship at Bhavan’s SPJIMR.