Three-quarters of Indian companies predict fixed-term employment contracts will rise under new labour laws

The study, conducted in January by staffing and HR solutions provider Genius HRTech, was based on responses from 1,459 companies across a variety of sectors.

The four Labour Codes – Code on Wages, 2019, Code on Social Security, 2020, Occupational Safety, Health and Working Conditions Code, 2020 and the Industrial Relations Code, 2020 – were passed by the Union Government in November 2025, and introduced a number of new employment and safety rights for workers. Genius HR Tech says the study suggests that organisations are increasingly moving towards formal, compliant and documented employment arrangements in response to the regulatory changes, which include a new right for employees on fixed-term employment contracts to receive the same benefits employers were previously only legally obliged to provide to permanent workers, including paid leave, medical insurance and social security coverage.

Fixed term employment contracts allow employers to hire staff for a fixed period, therefore offering flexibility over the number of people employed by a business at any one time. Under the new Labour Codes, FTE workers will receive new entitlements, including a free annual health check-up. They will also be eligible for a ‘gratuity’ – a statutory lump-sum payment made by an employer to an employee upon leaving a job due to resignation, retirement, death, or disability – after one year of continuous service. Previously, FTEs had to complete five continuous years of service to be eligible.   

However, the research revealed that a significant number of employers are not fully prepared for the various changes to employment, safety and social security laws under the Codes, which are expected to come fully into force in the coming months, once all State Governments have pre-published the draft new rules for public feedback.    

Around 40 per cent of respondents said their organisations are fully prepared to roll out the four Labour Codes. However, 22 per cent reported being partially prepared, 17 per cent remain at an early stage of readiness, and 21 per cent have yet to begin their implementation efforts.

The report also revealed that nearly 46 per cent of organisations have not yet undertaken a structured gap analysis of their HR, payroll and compliance systems, while only 18 per cent have completed the exercise. Another 21 per cent said the process is currently under way, while 15 per cent are still planning to begin the analysis, suggesting that systemic preparedness may lag behind perceived organisational confidence.

Far-reaching impact

Among the four Labour Codes, the Code on Wages is expected to have the most far-reaching impact on workforce structures. About 67 per cent of respondents identified it as the provision likely to drive the most significant changes.

The reform is expected to lead to wage definition realignment, payroll restructuring and compliance adjustments, which could alter existing cost frameworks for companies. In line with this shift, 39 per cent of organisations reported that their wage structures are already fully aligned with the revised definitions under the Code on Wages.

Beyond structural and compliance changes, a robust body of research shows a strong correlation between income security and mental wellbeing. The connection between mental wellbeing and financial security runs deep, especially for those who are on the lower end of the pay scale or who have heavy financial burdens. It has been reported that people who earn lower incomes have a three times higher risk of suffering from mental health conditions like anxiety and depression, than those who do not face financial hardship.

By ensuring timely payment of wages, standardising wage definitions and extending minimum wage protections across sectors, the Code on Wages can reduce income instability, a major driver of financial anxiety, say employment rights commentators. Research over the past two decades has consistently found that financial stress lowers employee health, productivity and workplace engagement, while increasing conflict and emotional strain.

For workers in informal, contract and gig roles – where earnings are often irregular – greater wage predictability and transparency can ease the constant pressure of meeting basic needs, say commentators. The importance of this is particularly evident in India’s gig economy, where pay insecurity and income instability have been linked to stress, burnout and reduced productivity, according to the Economic Survey 2026.

Despite the challenges the introduction of the new codes poses to business, the long-term outlook remains largely positive, with 60 per cent of respondents to the Genius HRTech  survey viewing the Labour Codes as a major step towards improving employment formalisation and regulatory compliance in India.

“For organisations, this is a strategic transformation that demands proactive realignment of wage structures, social security frameworks and workforce models,” said RP Yadav, chairman and managing director of Genius HRTech. “Those who act early will emerge stronger, more compliant and more resilient, provided implementation balances governance with practical cost realities,”

Extensive debate

Meanwhile, the labour law reforms have generated extensive debate across the country.

After the codes became effective in November, the India Electronics & Semiconductor Association (IESA) said the reforms would significantly benefit high-technology sectors by enhancing workforce stability, improving safety standards and enabling labour flexibility with social protection.

“Mandatory appointment letters, universal minimum wages, and pan-India social security coverage (including ESIC e) ensure greater formalisation,” Ashok Chandak, president of IESA India told news agency IANS. “This strengthens worker confidence – critical for skill-intensive manufacturing such as fabs, ATMP, component manufacturing and design centres.”

However, Dr KR Shyam Sundar, professor of practice at the Management Development Institute Gurgaon, wrote in The Leaflet: “The codes do little to improve social security for the organised workers, as the original thresholds for Employees’ Provident Fund (‘EPF’), and Employees’ State Insurance (‘ESI’), fixed during the early years of planning, remain the same. The social security clauses concerning the unorganised workers are a slight improvement of the Unorganised Workers’ Social Security Act, 2008.

“However, still, the clauses concerning social security are incomplete and the Code does not promise any benefits in the law. They are left to the rule-making processes. CSS [Code on Social Security], thus, is an empty law which disappoints millions of unorganised workers.” 

On 1 April, in Khammam, in Telangana, trade union leaders staged a protest demanding the repeal of the Labour Codes, alleging they favour the interest of big business and weaken workers’ rights. The leaders called for collective resistance against the Centre’s employment and labour policies and urged State Governments that are not run by the Modi Government’s Bharatiya Janata Party to refrain from implementing the codes.