India’s Labour Law Overhaul Boosts Demand for Compliant EOR Partners
India’s Labour Law Overhaul Boosts Demand for Compliant EOR Partners
Why Companies Are Turning to Employer of Record (EOR) Providers Amid India’s New Labour Codes
India is undergoing one of the largest labour-law transformations in its post-independence history. The introduction of the new labour codes—the Code on Wages, Industrial Relations Code, Social Security Code, and Occupational Safety, Health and Working Conditions Code—signals a modernized, business-friendly, and compliance-intensive HR regime.
While these reforms are designed to simplify India’s fragmented labour ecosystem, they also introduce significant obligations for employers, especially multinational companies hiring remotely or running distributed teams in India.
The result?
A massive surge in demand for compliant Employer of Record (EOR) partners, who are now becoming indispensable strategic allies for organizations navigating India’s evolving HR, payroll, and statutory landscape.
In this deep-dive article, we explore:
✔ What India’s new labour codes change
✔ Why companies face heightened compliance risk in 2025
✔ How EOR partners ensure smooth, lawful, and scalable operations
✔ Why global firms are shifting from contractors to compliant employment models
✔ How MM Enterprises, one of India’s trusted EOR partners, supports organizations through this transition
1. India’s Labour-Law Overhaul: A Historic Shift
For decades, India had over 40+ central labour laws and 100+ state-level regulations, creating unnecessary complexity, overlaps, and compliance bottlenecks. To address this, the government consolidated these laws into four unified labour codes:
1. Code on Wages, 2019
Combines laws related to:
Minimum wages
Payment of wages
Bonus regulation
Equal remuneration
It introduces new rules on wage structure components, significantly impacting payroll processing.
2. Industrial Relations Code, 2020
Reforms relating to:
Hiring and firing
Trade union rules
Employment conditions
Dispute resolution
It changes how companies manage workforce transitions, fixed-term contracts, and terminations.
3. Social Security Code, 2020
Covers:
PF, ESIC, gratuity
Gig worker protections
Social security for remote and contract workers
It introduces broader coverage, mandatory contributions, and digital tracking.
4. Occupational Safety, Health and Working Conditions Code (OSHWC), 2020
Applies to:
Workplace safety standards
Working hours
Compliance for remote/hybrid models
Contractor working conditions
Together, these four codes aim to unify India’s labour market, but they also introduce new compliance responsibilities for employers—especially those with remote teams or contractual workforces.
2. What These Reforms Mean for Employers in 2025
While the new labour codes promise simplification, companies find themselves dealing with increased monitoring, digital reporting, and strict enforcement.
Here are the biggest challenges companies now face:
🟦 A. Redefined Wage Structure
Under the new rules:
At least 50% of CTC must be considered as “wage”
Allowances capped at 50%
PF and gratuity contributions increase
This significantly affects payroll, costing, budgeting, and contract structures.
🟦 B. Wider Social Security Coverage
Companies must now include:
Contract workers
Gig workers
Temporary staff
Remote employees
This increases statutory compliance obligations for global companies.
🟦 C. Real-Time Compliance Reporting
The government has implemented:
E-registrations
Digital inspections
Real-time compliance audits
Non-compliance now leaves a direct digital footprint—making mistakes costlier.
🟦 D. Rise in Penalties
The new codes impose:
Higher monetary penalties
Direct liability for directors & country managers
Strict actions for contractor misclassification
This is especially alarming for foreign companies hiring freelancers or remote contractors in India.
3. Why Companies Are Turning to EOR Partners in 2025
As compliance requirements tighten, companies—especially global firms hiring in India—are shifting toward Employer of Record (EOR) partners to eliminate legal and operational risks.
EOR Is No Longer an Option. It’s a Necessity.
🟩 A. EORs Ensure 100% Statutory Compliance
EOR partners handle:
PF, ESIC, Gratuity
Bonus, Leave compliance
Shops & Establishment compliance
Income tax deductions (TDS)
Digital labour registry updates
They guarantee that your workforce is employed in accordance with the new labour codes, shielding your business from penalties.
🟩 B. Hiring Contractors Is Now Riskier
Under the new definitions:
Contractors performing core roles must be regularized
Long-term gig workers must be covered under social security
Misclassification is penalized heavily
An EOR ensures correct worker classification and manages compliant employment contracts.
🟩 C. Payroll Modernization Becomes Simpler
With new wage rules and social security structures, payroll must now be:
Recalculated
Reconfigured
Digitally audited
EOR providers modernize payroll systems and automatically apply the new code changes.
🟩 D. Smooth Workforce Expansion Without Entity Setup
Global organizations can:
Hire in India legally
Avoid entity establishment
Scale teams rapidly
Exit effortlessly
This reduces cost, complexity, and operational burden by 80%.
(See more on our EOR capabilities here: https://mmenterprises.co.in/global-eor-services-companies-in-india/)
🟩 E. Zero Legal Liability for Employers
With an EOR, the partner becomes the:
Legal employer
Compliance owner
Payroll processor
Benefits administrator
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