Formalisation of India’s labour market on the rise, says Quess Corp report

The formal sector accounts for 13.1% (73.10 million), and the flexi/temporary segment has grown to 6.8% (37.93 million), signalling structural shifts in employment formats across states.

Bengaluru: India's labour market is rapidly transitioning from informal to formal employment and this shift is redefining how work is organised and delivered. A lot more workers are coming under the structured payroll systems, compliance frameworks, and long-term social security coverage, a new report said.

Around 84.7 per cent (472.16 million) of the total workforce of approximately 557.39 million are still engaged in informal employment in the country. The formal sector accounts for 13.1 per cent (73.10 million), and the flexi/temporary segment has grown to 6.8 per cent (37.93 million), signalling structural shifts in employment formats across states.

However, multiple macro trends, including digitalisation, improved regulatory oversight, and growing workforce awareness, are accelerating formalisation efforts across the country, according to the Pulse Report FY25 released today by Quess Corp, India's largest staffing and workforce solutions provider.

The Employees' Provident Fund Organisation (EPFO) has recorded 139.78 lakh net new subscribers in FY25, its highest ever. The subscriber base more than doubled in the last six years from 61 lakh enrolments seen in FY19. In FY25, there were 1.31 crore new subscribers.

Total EPFO membership grew to 32.7 crore by March 2024, up from 29.9 crore in the previous year, showing a year-on-year increase of 9.36 per cent.

"This surge is being driven by the digitisation of payrolls, better employer compliance, government incentives for formal hiring, and growing worker demand for social protections like provident fund (PF) and Employee State Insurance (ESI).

Quess Corp alone contributed 1.33 lakh new Universal Account Numbers during the year. This represents approximately 1 per cent of all national additions. Quess Corp employs around 4.55 lakh workers as of March 2025.

The demographic composition of EPFO additions indicates that younger workers are increasingly entering the formal economy very early in their careers. In FY25, 61 per cent of all new EPFO subscribers were under the age of 29. Nearly 50 per cent belonged to the 18-25 age group, suggesting that formal employment is becoming a first step for many new workforce entrants. "This is a promising signal for long-term economic productivity, as formal employment not only ensures better wages and protections but also opens up access to skilling and career advancement," Quess Corp said.

Platforms like Udaym Assist are formalising small business workers, especially in trade, logistics, and services.

Commenting on the findings, Lohit Bhatia, President, Workforce Management, Quess Corp, said: “As the Pulse Report highlights, India’s workforce is evolving rapidly, but sustaining this growth requires deeper investments in skilling, employment policies and inclusivity. Policy interventions such as the reduction of Goods and Services Tax (GST) on staffing services from 18 per cent to 5 per cent, encouraging foreign direct investment in manufacturing and overseas employment will largely expand opportunities."

The female labour force participation rate (LFPR) increased to 41.7 per cent in 2023-24, as per labour force surveys. However, women accounted for only 25 per cent of new EPFO subscribers, an improvement over past years but still reflective of a gender gap in formal workforce participation.

Bridging this gap will require more inclusive hiring policies, flexible work formats, and stronger institutional support for women entering or returning to the workforce, particularly in urban and semi-urban markets, the report said.

At Quess Corp, of the 1.33 lakh new UANs generated, 30,000 (22.5 per cent) were for women, particularly in graduate and postgraduate roles. The IT and ITeS sector recorded the strongest participation, with women forming 31 per cent of Quess’ workforce. Among states, Karnataka, Tamil Nadu, Telangana, the North-Eastern states, and Goa emerged as top performers, with women representing close to 30 per cent of the workforce in these regions.

Sectoral overview

India's employment landscape is undergoing a transformative shift, marked by increasing formalisation and diversification across both traditional and emerging industries. About 41.7 per cent of the country's workforce remains employed in agriculture, while a growing 58.3 per cent is engaged in non-agricultural sectors such as manufacturing, construction, logistics, and services.

This migration from farm to non-farm employment underlines the importance of sectors that can absorb both rural and urban labour and support the country's formalisation agenda.

Several non-agricultural industries are emerging as leading job creators, offering low- to mid-skill opportunities with growing potential for formalisation. Construction (11.98 per cent), manufacturing (11.44 per cent), trade and retail (10.23 per cent), and transport/logistics (4.28 per cent) account for a large share of employment in India's non-agricultural workforce.

The education sector employs approximately 15.29 million people, while infrastructure supports around 13.37 million jobs, driven by ongoing urbanisation and public investment.

Logistics and transportation together account for 15.28 million and 9.53 million workers, respectively, highlighting the backed momentum of e-commerce and supply chain services.

Services sector dynamics

The IT sector employs 3.10 million, and healthcare supports 6.65 million workers nationwide. Retail and BFSI are leading fresh recruitment efforts, especially in Tier-2 and Tier-3 cities, where branch expansion and fintech adoption are creating new opportunities.

The IT sector employs 0.55 million flexi staff, and ITeS employs 0.49 million, with ITeS showing the highest temporary staffing penetration at 23.7 per cent. India's gig workforce stands at 11.2 million and is projected to grow to 23.5 crore by 2029-30, largely driven by scalable, tech-led platforms.