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India's labour market is often characterised as 'informal', with over 93% of workers located outside the organised sector in what is known as the 'informal economy'. Notably though, the divide between formal and informal workers emerges as a product of legal architecture rather than a category based on the degree of vulnerability of the workers or their nature of work. Formal or 'organized sector' labour, legally, refers to work performed in registered establishments, where workers draw regular wages or salaries, have enforceable workplace rights, with access to the state's social security system. However, the fact is that, even within these 'formal' establishments, large sections of the workforce remain contractual, casualised, and excluded from core legal protections.
When informality is explained either as a result of weak implementation or as a space existing outside the reach of law, it risks ignoring the role of legislation itself in shaping informality. The informality lies merely 'outside the reach of law' and instead argue that it is produced and sustained through labour laws themselves, particularly through exclusionary definitions and applicability thresholds.
Through an analysis of the labour laws, past[1] and present[2], I discuss the three factors that perpetuate informality and make labour protections unavailable. Firstly, narrow legal definition of who is considered as a 'worker' or 'employee'; secondly, workforce size based arbitrary thresholds that determine applicability of employer liabilities and labour protections; and thirdly, discretionary social security schemes that replace enforceable rights - all of which collectively produce informality as a legal status. I conclude with a call for fundamental reimagination of labour laws based on universal, enforceable workplace rights, while confining the scope of this article here to a critical examination of how informality is legally produced.
Who is a worker?
Legal definitions and the architecture of workers'exclusion
One of the primary ways in which workers are excluded from legal protection is by denial of their worker identity itself; it is embedded in narrow legal definitions of 'worker' and 'employee', that recognise certain forms of work while invisibilising others, thereby laying the foundation for the legal production of informality. The question of who is a “worker” has been a site of longstanding political and legal struggle in India.
Owing to this senseless legal swinging between recognition and non-recognition, factors like gender, class and caste dictate the terms of work. Research points to how labour contracts are affected by gender (more open-ended obligations and less power to choose for women), caste (which affects the tasks available to a household), age, and household composition[3]. For example, women in the coir industry are not recognised as a 'worker', they are termed as 'casual' or 'faltu' labour; a majority of workers involved in piecemeal work like beedi making, arecanut pealing , pickle-making etc. are categorised as 'self-employed'; those working from home or those engaged in so called “flexible” ways like gig and platform work are also not legally recognised as workers. In all the above mentioned cases, a clear cut wage relationship exists and working conditions are largely determined by a contractor/employer. Despite this, workers are denied legal status, and with it, all the associated rights.These exclusions are routinely justified through the rhetoric of 'flexibility' attributed to such jobs; a view that looks at such work arrangements as voluntary choices only; The critical difference, however, is that this flexibility is not a choice exercised by workers but a choiceless condition imposed upon them. It is precisely the absence of legal recognition that gives a freehand for employers to create exploitative working conditions that favor profits over workers' lives and well-being. Therefore, this regulatory design not only enables, but also incentivises employers to stay outside the applicability of law, recruit informal workers and evade basic employer obligations like safety, social security, minimum wages and injury compensation to name a few.
Sec. 2(s) of The Industrial Disputes Act, 1947, defines a “workman” as a person employed to perform manual, unskilled, skilled, technical, operational, clerical or supervisory work, while expressly excluding those employed in a managerial or administrative capacity and supervisory workers above a wage ceiling. Employers use this leeway to hire casual or temporary workers tactfully for an employment period that does not amount to a continuous year while making them perform tasks akin to a workman. The willful omissions within the legal definition of workmen, gives immense scope for unfair employer practices which deprives casual workers of the status and privileges of 'workmen' like lay off compensation, retrenchment, social security, etc.
The Industrial Relations Code, 2020 (IR Code) which replaces the Industrial Disputes Act carries forward a similar exclusionary definition of a “worker” under Sec.2 (zr) of the IR Code. Likewise, the Factories Act, 1948, limited the definition of “worker” to persons employed in a manufacturing process carried out in a factory (Sec. 2(l) read with Sec.2(m)) thereby excluding home-based and piece-rate workers operating as extensions of factory production. Despite the absence of a formal factory setting, the fact remains that the wages and working conditions in such arrangements are determined by an employer in such units.
The Contract Labour (Regulation and Abolition) Act, 1970 recognised only those workmen employed through a contractor (Sec.2(b)), presuming the existence of a legally identifiable contractor. Workers hired through informal intermediaries or non-registered/non-licensed labour suppliers (most common in construction and other informal sectors) get excluded from this framework. This infirmity is carried forward into the Occupational Safety, Health and Working Conditions (OSH) Code, 2020 . Sec. 54 of the OSH Code simply declares the practice of hiring workers through unlicensed contractors to be a contravention of the law without prescribing any form of deterrent, such as penalisation or imprisonment of employers, or any remedy for workers.
The Employees' Provident Funds Act, 1952 and the Employees' State Insurance Act, 1948 define coverage through establishment-linked wage employment, thereby excluding workers who lack a stable employer identity. As the state incentivises fragmentation of production units and contractualisation through threshold-based applicability of labour protections and an “ease of doing business” policy framework that effectively rewards firms for remaining small, dispersed, and subcontracted, locating the “principal employer” in the informal sector becomes structurally difficult. As a result, even where employment relationships clearly exist, workers are excluded because the legal framework itself obstructs the identification of a principal employer. In effect, neither the state nor business is held accountable for guaranteeing workers' social security.
The Unorganised Workers' Social Security Act, 2008 recognised “unorganised worker” as a separate legislative category (as they were exempt from the definition of 'workmen') but offered no enforceable workplace rights. Further, social security provisions were made contingent upon discretionary welfare schemes administered by state boards, which are riddled with dysfunctionalities.[4]
The Code on Social Security, 2020 acknowledges “gig worker” and “platform worker” as separate legal categories Sections 2(35), 2(60) and 2(61) while placing them outside the legal employer-employee relationship under the guise of 'independent contracting' and work 'flexibility'. Social security entitlements are once again routed through unenforceable and discretionary welfare schemes administered by state boards.
The Code on Wages, 2019 retains exclusionary definitions of 'employee' and 'worker', leaving a majority of the workforce outside its applicability Sec. 2(k) and Sec. 2(z). Gig and platform workers - a group that government think tank NITI Aayog forecasts will reach about 23.5 million by 2029-2030[5] - are widely and wrongly conceived as 'independent contractors' and delivery partners Similarly excluded are self-employed workers and frontline care workers such as ASHAs and Anganwadi workers, who are designated as 'volunteers' despite performing essential public functions.[6] The Code is also silent on workers dependent on the commons, including forest and salt pan workers, offering no clarity on how fair wages or other statutory protections will apply to them given their exclusion from the definition of 'worker.[7]
Labour Laws for whom?
Statutory thresholds and the architecture of employer evasion
A central mechanism through which Indian labour law sustains informality is the use of statutory thresholds. Legal protection across core labour legislations is made contingent on establishment size, total workers employed, use of power, or turnover, instead of workers' vulnerability and the nature of work. Under the Factories Act, 1948, applicability was restricted to premises employing ten or more workers where power was used, or twenty or more workers where it was not (Sec. 2(m)). This excluded small units from legal regulation of working hours, safety standards, social security and audits by labour inspectors. As per the Annual Survey of Industries (2017-18), over 47% of all registered factories employed fewer than twenty workers, placing nearly half of such factories outside core workplace rights. The Sixth Economic Census report (2016) similarly reported that manufacturing and mining establishments with ten or more workers made up just 2.05% of all non-agricultural establishments[8]. The OSHWC Code, which replaces the Factories Act, has doubled the previous thresholds (Sec.2 (m))[9], pushing more establishments than before outside the applicability of the law.
Similarly, protections against lay-off, retrenchment, and closure, under Sec. 25K of the Industrial Disputes Act, 1947applied to establishments employing 100 workers. The Industrial Relations Code raises this threshold to 300 workers (Section 28). Further, the threshold for mandatory Standing Orders, which defines workers' rights and service conditions, has also been raised from hundred workers (Sec. 1(3) of the Industrial Employment Standing Orders Act, 1956) to three hundred workers (Sec. 28 of the Industrial Relations Code, 2020).
This warped logic is replicated in the social security legislations as well. The Employees' Provident Funds Act, 1952 applied only to establishments employing twenty or more persons (Sec.1(3)), while the Employees' State Insurance Act, 1948 applied, subject to state notification, to establishments employing ten or more persons (Sec. 1(5)). Instead of moving towards universal protection, the Social Security Code, 2020 which replaces the old social security laws, retains these exclusions. While it introduces separate provisions for unorganised, gig, and platform workers, these categories are granted only registration-based and scheme-dependent benefits, without any enforceable entitlements or defined timelines. Social security protection thus remains fragmented, discretionary, and structurally detached from enforceable labour rights.
The Contract Labour (Regulation and Abolition) Act, 1970 applied only to establishments and contractors employing twenty or more workmen (Sec.1(4)). As it is, this provision created a conducive environment for principal employers to stay below the statutory coverage and benefit from multi-layered contractualisation. The OSH Code has raised this threshold to fifty workers (Sec.2(w)), further diluting accountability. Therefore, in the majority of the workplaces (that fall below the threshold) at present, hire contractual workers who do not have even basic enforceable rights like workplace safety, injury compensation, wages, etc.
It is pertinent to note how these arbitrary thresholds enable employers to stay outside the purview of labour laws, evade workplace liabilities, normalise work precarity and create a vicious cycle of informality. T.S. Papola and others (2000)[10] found that the Industrial Disputes Act applied to barely over 5.5% of the total workforce. This shows that even under the pre-Labour Codes regime, statutory labour protections reached an abysmally small fraction of workers. With the increase in threshold under the Industrial Relations Code, the number of factories covered by the law only stands to decrease. Thresholds do not merely limit regulation, they actively structure employer behaviour. Informality becomes logical and profitable under such a design.
Informality in India does not exist outside labour law; it emerges as a direct outcome of it; Through exclusionary definitions, increased threshold, and discretionary scheme based social security framework, labour law selectively grants rights, producing informality as a legal condition rather than a regulatory or implementation failure.
Understanding this distinction becomes crucial in charting a constructive way forward. In the context of ever deepening inequality, any meaningful response to informality must be rooted in a fundamental reimagination of the labour law architecture in India, one that can especially transcend selective inclusion and move towards the universalisation of enforceable workplace rights and welfare for informal workers. Until then, informality will remain as an inevitable outcome of the labour laws.
Industrial Disputes Act, 1947;Factories Act, 1948; Employers' State Insurance Act,1948 ; Employees' Provident Fund and Miscellaneous Provision Act,1972 ; Contract Labour (Regulation and Abolition Act),1970; The Unorganised Workers' Social Security Act, 2008 ↑
Code on Wages, 2019; Industrial Relations Code, 2020; Code on Social Security, 2020; Occupational Safety, Health and Working Conditions Code, 2020: ↑
Ben Rogaly, 'Agricultural Growth and the Structure of “Casual” Labour-hiring in Rural West Bengal', Journal of Peasant studies, vol. 23, no.4, 1996, pp.141-166. ↑
Kathyayini Chamraj, A Dysfunctional Social Security Law for Unorganised Workers; Available at: https://civicspace.in/wp-content/uploads/2019/10/Revised-A-Dysfunctional-Social-Security-Law-for-Unorganised-Workers-Analysis-and-Recommendations-22.1.16-1.pdf ↑
NIT Aayog Press Release. Available at: https://www.pib.gov.in/PressReleasePage.aspx?PRID=1837277®=3&lang=2 ↑
Bharadkar, Kavya and Mathew, Babu. (2021). The Journey of Labour Regulation. ↑
P Bala Murugan, P Selvi, M Shreela (2025). India's Labour Codes and Tamil Nadu Rules: What it means for workers and their rights ↑
Sundar, Shyam. (2019). Industrial Disputes Act: Don't tinker with Chapter V-B. Available at: https://www.financialexpress.com/opinion/industrial-disputes-act-dont-tinker-with-chapter-v-b/1431860/ ↑
Factories using power now need 20 workers (earlier 10) & Factories not using power now need 40 workers (earlier 20) to come under the law. ↑
T. S. Papola and Alakh Sharma, 'Introduction', in Papola and Sharma (eds.), Gender and Employment, pp. 1–23; da Corta and Venkateswarlu, 'Unfree relations'. ↑
Author is a Lawyer working with India Labour Line, Aajeevika Bureau in Bengaluru. Views are personal