Summary of this article
New labour codes mandate a worker reskilling fund equal to 15 days of last drawn wages for every retrenched worker.
Employers must deposit the reskilling amount within 45 days of retrenchment to support retrenched workers’ upskilling.
The fund is intended to provide short-term income support and finance new skills so retrenched workers can find fresh employment.
The new labour codes have become effective from November 21, 2025. With several reforms related to payment rules, working conditions, social security, and other changes, the codes also stipulate a payment for reskilling to retrenched employees. Considering the current job scenario, where retrenchment is as common as recruitment, payment for reskilling is a major reform. Overall, the government has merged 29 old and complex labour laws into four labour codes, and the reskilling change is done under the Industrial Relations (IR) Code, 2020.
What Is Reskilling Fund?
The new code says that “in case of any retrenchment of a worker by an employer, the employer will need to contribute equivalent to 15 days’ of last drawn wages of the retrenched worker, within 45 days of retrenchment.”
It is expected to benefit employees as they will get some payment, which is meant for learning new skills and helping them in securing work again. It will provide them short-term relief and, as the government statement says, expand protection beyond severance payment.
Arjun Paleri, partner at BTG Advaya, a law firm, says, “On the flip side, this will mean that employers who retrench employees following the statutory retrenchment process will need to earmark an additional amount to contribute to the re-skilling fund. Looking at it plainly, this will increase retrenchment costs.”
So, the fund is expected to protect employees, but it will increase the cost for employers, which may have an adverse effect on hiring.
“However, looking at it holistically, in the long run, employers are likely to benefit from this, as the money they contribute to this fund will be used to re-skill the retrenched employees, potentially creating a more skilled labour market overall,” says Paleri.
Can States Modify These Codes Before Implementation?
The labour codes operate at three levels: (i) the central (federal) framework for all covered establishments, (ii) the central rules that operationalise the codes at the central level, and (iii) the state rules that operationalise the codes within each state.
“At present, only the first level has been brought into force, which is the central (federal) framework for all covered establishments. The central and state rules have not yet been formally notified, but are expected shortly,” says Paleri.
“We can expect that this will be operated in a manner, whereby employees would benefit from it through a process that the government has not yet announced. The central and state rules will certainly clarify the process to administer this,” he adds.
In short, this reform may seem to be heavy on employers’ pockets, but in the long-term, as Paleri says, it will create a more skilled labour market.
