India's New Labour Codes: What Employers Must Actually Do Now

Four codes, twenty-nine laws replaced — and a compliance clock that started in November 2025

By Mantasha Abid 

On 21 November 2025 the Government brought the four labour codes into force, replacing twenty-nine central labour enactments with a single consolidated framework. On 8 May 2026 the Ministry of Labour and Employment notified the central rules under all four codes. Most states have now notified their own rules; a handful have not.

Many employers are still waiting. That is the wrong reading of the position. The codes are primary legislation and they are in force. Rules prescribe how obligations are discharged — forms, registers, procedures — but they do not create the obligations. An establishment that has not restructured its wage bill, reissued appointment letters, or reassessed its fixed-term contracts is already accruing exposure, and arrears will be computed from November 2025, not from whenever the last state rule appears.

This note sets out what changed, what is operative today, and what a compliant employer should have in place.

The four codes and what they replaced

The single change that costs the most: the definition of "wages"

The codes adopt one definition of "wages" across all four statutes. That alone is a significant simplification — the same figure now drives gratuity, provident fund, bonus, leave encashment, overtime and ESI, where previously each Act carried its own formulation and generated its own litigation.

The mechanics are what matter. "Wages" means basic pay, dearness allowance and retaining allowance, and excludes a specified list of components — house rent allowance, conveyance, overtime, commission, statutory bonus and others. But the definition carries a proviso: if the excluded components exceed 50% of total remuneration, the excess is added back and deemed to be wages. Remuneration in kind is counted up to 15% of total remuneration.

The practical effect is that the familiar Indian salary structure — a modest basic with a large allowance stack — no longer works. Where basic plus DA sits at, say, 35% of CTC, roughly 15 percentage points of the allowance load must be treated as wages for statutory purposes. Provident fund, gratuity accrual, leave encashment and bonus all rise accordingly.

This is a cash cost, not a paperwork exercise. For an employer whose basic has historically been set at 40% of CTC, moving to the statutory floor increases annual PF outgo materially across the workforce, and increases the gratuity provision on the balance sheet. It also reduces employee take-home pay if the gross is held constant — which is a communication problem as much as a legal one, and one that is better handled before employees discover it on a payslip.

What to do: model the cost at both the employer and the employee level before you restructure, decide whether the increase is absorbed or passed through, and document the rationale. Silent mid-year restructuring of pay is how these exercises turn into disputes.

Fixed-term employment: gratuity at one year

Fixed-term employment now has express statutory recognition. A fixed-term employee is entitled to the same hours, wages, allowances and statutory benefits as a permanent employee doing comparable work, on a proportionate basis.

The provision that catches employers out is gratuity. A fixed-term employee earns gratuity on completion of one year of service, not the five years that applies to permanent employees under the old Payment of Gratuity Act threshold. Any organisation running annual renewable contracts — common in IT services, manufacturing support functions and project-based work — has an accrued liability that may not be on its books.

What to do: audit every fixed-term contract on foot, quantify the gratuity accrual from one year, and correct the provision. Check whether contracts drafted before November 2025 are silent on this; silence does not defeat the entitlement.

Industrial Relations Code: the thresholds moved

Three changes matter most to establishments of any scale:

• Standing orders now apply to industrial establishments with 300 or more workers, replacing the patchwork of 50 and 100 thresholds. Establishments crossing 300 must have certified standing orders, and the central rules prescribe model standing orders for mines, manufacturing and the service sector.
• Retrenchment, lay-off and closure require prior government approval only at 300 or more workers, up from 100 under the Industrial Disputes Act, 1947. This is the flexibility the codes were principally intended to deliver, and it is real — but note that several states had already legislated this threshold, so the change is less dramatic in those states than the headlines suggested.
• A worker re-skilling fund now requires the employer to contribute fifteen days' wages per retrenched worker, payable to the worker's account within a prescribed period.

On collective bargaining, a union with 51% or more of the workers on the muster roll is recognised as the sole negotiating union. Where no union clears that bar, a negotiating council is constituted from unions holding at least 20% support.

Strike procedure has been tightened and now applies across all industrial establishments, not only public utilities. A strike requires notice, and cannot be commenced within fourteen days of that notice, nor after the date specified in it, nor during conciliation proceedings and for seven days after their conclusion.

Social security: gig and platform workers enter the statute

For the first time, "gig worker", "platform worker" and "aggregator" are defined in Indian law, and aggregators are brought into the social security net.

Aggregators must contribute between 1% and 2% of annual turnover to a social security fund for gig and platform workers, subject to a ceiling of 5% of the amounts payable by the aggregator to those workers. Registration of gig and platform workers runs through a centralised Aadhaar-linked portal, with eligibility conditions tied to a minimum period of engagement in the preceding financial year.

If your business operates a platform that engages workers outside an employment relationship — delivery, ride-hailing, home services, freelance marketplaces — this is a new and direct financial obligation, and the classification question (is this person a gig worker, a contractor or an employee?) now carries consequences it did not before.

Occupational safety and working conditions

The OSH Code consolidates thirteen enactments and shifts the compliance model from multiple registrations to a single registration, with a common licence available across factory, contract labour and certain other activities. Returns and registers are similarly consolidated.

Operationally, the provisions that reach the largest number of employers are:

• Appointment letters are mandatory for every employee. The central rules prescribe a standard format. This is the single most commonly breached obligation in the Indian market and the easiest to fix.
• Working hours are capped at eight hours a day and forty-eight a week, with overtime at twice the ordinary rate and a quarterly overtime ceiling.
• Women may work at night in any establishment, including in hazardous work, subject to consent and to prescribed safety conditions.
• Annual health check-ups for workers above a specified age, free of cost, in prescribed establishments.
• Contract labour provisions now bite at 50 or more contract workers, for both principal employers and contractors.

What is in force, and what still depends on rules

The substantive obligations — the wage definition and the 50% proviso, fixed-term gratuity, the revised thresholds, mandatory appointment letters, the working-hours framework — operate from the codes themselves and are live.

What still depends on subordinate legislation is mostly quantum and machinery: floor wage rates, the detailed operation of the gig worker scheme, ESI wage ceiling revisions, inspection procedure and appellate designations. And because labour is a Concurrent List subject, the applicable rules for most private employers are state rules, which vary. An employer operating across several states must map its obligations state by state rather than assume a single national position.

The error to avoid is treating the pending items as a reason to defer the substantive ones. They are not connected.

An action list

1. Restructure the wage bill. Compute basic plus DA as a proportion of total remuneration for every employee, identify those below the 50% line, model the employer cost and the take-home impact, and implement with proper communication.
2. Reissue appointment letters in the prescribed format, to every employee, including those engaged years ago.
3. Audit fixed-term contracts and book the gratuity accrual from one year of service.
4. Recheck your headcount against the thresholds — 300 for standing orders and for retrenchment approval, 50 for contract labour, and the applicable numbers for grievance committees, works committees, canteens and crèches.
5. Update working-time policy to the eight-hour day, the weekly cap and the overtime ceiling, and make sure the payroll system actually enforces them.
6. Map your states. Identify which state rules govern each establishment and track the ones still pending.
7. If you run a platform, classify your workforce properly and provision for the aggregator contribution.
8. Keep a transition record. When an inspection or a dispute arrives, contemporaneous evidence of a considered compliance exercise is worth a great deal more than a retrospective reconstruction.

Conclusion

The labour codes are the most substantial restructuring of Indian employment law in seventy years, and their central achievement — one definition of wages, one registration, one return — is genuinely simplifying. But simplification at the level of the statute book does not mean a light transition at the level of the individual employer. The wage definition alone forces most Indian organisations to rebuild their salary structures, and the fixed-term gratuity rule creates liabilities that many have not yet recognised.

The compliance clock started on 21 November 2025. Employers who have not yet done the work are not waiting for the law to arrive; they are already behind it.

Insight Juris LLP advises employers on labour code transition — wage structure redesign, employment documentation, contract labour and fixed-term arrangements, standing orders, and multi-state compliance mapping. For assistance with a specific matter, please write to us.

Disclaimer: This article is intended for general information only and does not constitute legal advice. Readers should seek independent professional advice before acting on any part of it. The position stated is as of the date of publication, and state rules under the codes continue to be notified.