##Are STARTUPS ready for the Labour Codes?

 

Are Startups Ready for the Labour Codes?

India has replaced 29 old labour laws with four major codes — the Code on Wages, 2019, Industrial Relations Code, 2020, Occupational Safety, Health and Working Conditions Code, 2020 and Code on Social Security, 2020. The purpose is to simplify labour compliance and make doing business easier. However, from a legal point of view, the real question is whether startups are practically ready to follow these changes.

The most important change is the new definition of “wages.” Earlier, many startups structured salaries in a way that reduced statutory payments like provident fund and gratuity by increasing allowances. Under the new system, the wage structure must follow a fixed formula. This means startups may have to increase their statutory contributions. Legally speaking, ignoring this restructuring could lead to future penalties and disputes.

The recognition of fixed-term employment is helpful for startups that hire employees for specific projects. But the law now requires that fixed-term employees receive benefits similar to permanent employees, including gratuity on a proportionate basis. So while flexibility is allowed, it comes with responsibility.

Another major development is the inclusion of gig and platform workers under social security laws. Startups operating through app-based or aggregator models must understand that worker classification will now attract closer legal attention. Contribution towards social security schemes may become mandatory. Misclassification of workers can lead to serious compliance issues.

The Industrial Relations Code has increased the threshold for prior government approval in cases of layoff or closure to establishments with 300 or more workers. While many startups may currently fall below this number, growing companies must plan carefully. Employment decisions are no longer just business decisions , they have legal consequences.

The government has introduced digital registration systems and online inspections to reduce unnecessary interference. However, penalties for non-compliance remain strict. From a lawyer’s perspective, labour compliance should not be treated as a secondary task. Investors today examine employment records, contracts, and statutory filings during due diligence. Any non-compliance can affect funding and valuation.

In simple terms, the labour codes are pushing startups towards better structure and transparency. They are not barriers to growth, but they require careful planning. A startup that aligns its employment practices with the new legal framework at an early stage will grow more confidently and sustainably. The key question is not whether the law will apply — it certainly will — but whether startups are preparing in time.