The new Labor Code & ICICI Prudential support

December 2025

Effective November 21, 2025, India’s landmark labor law reform came into force, bringing clarity and consistency to how employers manage wages, social security, and occupational safety. It consolidates decades of fragmented legislation into a coherent system that’s easier to navigate and better aligned with today’s workforce realities. For global HR and compensation & benefits leaders, the implications are immediate: salary structures, benefit funding, documentation, and governance all need an upgrade to match the Code’s unified definitions and expanded coverage. 

For years, companies operating in India worked across multiple statutes and rules, each with distinct definitions and compliance obligations. The new framework replaces that patchwork with four consolidated Codes covering Wages (2019), Industrial Relations (2020), Social Security (2020), and Occupational Safety, Health and Working Conditions (2020) - rationalizing 29 central labor laws into a modern, end‑to‑end system. The government’s stated purpose is to simplify and streamline compliance while expanding social security to all workers, including those in gig and platform roles, and to formalize employment through mandatory appointment letters and timely pay.

Crucially for HR leaders, the reform combines nine social security laws into a single framework, sets unified wage and work definitions, and expands coverage to include gig and fixed‑term employees. These changes reduce ambiguity about who is covered and how benefits must be calculated and delivered, replacing overlapping requirements with clearer baselines for policy and payroll. 

The Code’s unified definition of wages aims to eliminate confusion across statutes, making it easier to calculate minimum wages, overtime, gratuity, statutory bonus, leave encashment, and social security contributions from a common base. This reduces compliance risk from divergent interpretations and encourages more transparent, equitable pay structures. 

Employers must issue appointment letters to all workers, ensuring clear records of role, wage, and entitlements, and must ensure timely wage payments as a matter of law- not simply policy. This formalization boosts workforce trust and simplifies audits. 

The Social Security Code brings gig and platform workers within the social protection net and recognizes fixed‑term employees with benefit parity to permanent workers, including gratuity eligibility after just one year of continuous service. For multinationals with contingent talent strategies, that means onboarding, payroll, and benefit enrolment workflows must accommodate these categories from day one. 

ESI stands for Employees’ State Insurance. It is a social security scheme in India that provides employees with benefits such as:

• Medical care for the insured worker and their family.
• Cash benefits during sickness, maternity, or temporary/permanent disability.
• Dependents’ benefits in case of death due to employment injury.

Under the new Labor Code, ESI coverage has been expanded pan-India. It is now:

• Mandatory for establishments with even one employee engaged in hazardous processes.
• Voluntary for establishments with fewer than 10 employees.
• Designed to ensure broader social protection for all workers, including contract and fixed-term employees. 

The reform will have its greatest impact on five key benefit areas for your workforce in India:

• Employees’ Provident Fund (EPF)
  Payroll must apply the new, unified wage definition consistently, so Provident Fund contributions are calculated correctly. This reduces errors and makes audits simpler.

• Employees’ Deposit Linked Insurance (EDLI)
  Employers can keep the standard EDLI coverage or switch to a group term insurance plan as an approved alternative. This option can simplify administration and provide more flexible coverage.

• Employees’ State Insurance (ESI)
  With ESI now covering all of India and having clearer eligibility rules, HR teams need to ensure timely registration, accurate contribution calculations, and clean employee data, including for contractors.

• Gratuity
  Fixed-term employees are now eligible for gratuity after one year of service. Accrual policies and funding strategies must be updated to handle more frequent and potentially higher liabilities.

• Retirement Benefits (Superannuation/National Pension System)
  The new framework encourages employers to adopt consistent, well-documented retirement plans and keep wage definitions aligned across all benefit calculations.

ICICI Prudential Life Insurance, IGP’s Network Partner in India, offers solutions that speak directly to employers’ needs under the new framework:

Group Term Insurance in lieu of EDLI

ICICI Prudential can design and implement group term insurance in lieu of EDLI, provide support required approvals, and standardize administration. This delivers consistent life cover to employees while reducing complexity for HR and payroll. For organizations with mixed workforce compositions, it’s a practical path to clarity and speed.

Future Service Gratuity (FSG)

A thoughtful enhancement to worker protection, FSG recognizes the gratuity obligation of unserved future years offered as sum assured and paid on event of death. It complements the Code’s social‑security ethos and helps employers deliver compassionate, comprehensive coverage in tragic circumstances.

Group Gratuity Scheme (with trust setup and governance)

ICICI Prudential provides Group Gratuity Scheme policies and assists employers in setting up tax‑approved gratuity funds, including liability estimation, investment options, and trust documentation. This professionalizes gratuity management, ensures compliance, and supports timely claims settlements.

These three offerings work as a coherent package: life cover aligned to statutory expectations, gratuity funded and governed, and documentation, robust enough to support audits as central and state rules evolve around the Codes. They are not “add‑ons”; they are enablers of compliance, predictability, and employee trust.

This reform is a cornerstone initiative designed to enhance workplace safety, improving ease of doing business, promoting formal employment and, foster inclusive growth, all while adhering to global standards.  

The Indian government frames the reform as both pro‑worker and pro‑industry, and the official release is explicit about its goals: minimum wages for all, universal social security coverage (including gig/platform workers), annual preventive health check‑ups for older workers, gender‑neutral employment, and single registration/licence/return to reduce compliance friction. These measures elevate standards in the Indian market while making global operations more predictable and less administratively burdensome.

The move also underscores a decade‑long expansion of social security coverage in India. Employers who align early with the Code’s logic will not only avoid compliance shocks; they’ll strengthen recruitment, retention, and reputation by offering benefits that are both law‑compliant and employee‑centric.

The new Labor Code gives multinationals a straightforward roadmap: adopt the unified wage definition, formalize employment practices, extend social security to all worker categories, and put structured funding in place for benefits like gratuity. Think of this as a chance to strengthen governance and simplify processes—not just a compliance task. With ICICI Prudential’s support for EDLI alternatives, Future Service Gratuity, and Group Gratuity funding, you can meet legal requirements while building a benefits framework that is reliable and employee-focused.