New Labour Codes

New Labour Codes

Introduction

New Wage Code: Existing 29 labour laws have been consolidated into 4 comprehensive labour codes.

Consolidated Four Labour Codes

The Code on Wages, 2019

4 Labour Laws Combined:

Minimum Wages Act / Payment of Wages Act / Payment of Bonus Act / Equal Remuneration Act

The Occupational Safety, Health & Working Conditions Code, 2020 (OSH Code)

13 Labour Laws Combined:

Factories Act / Contract Labour Act / Employees working in Sales Promotion / Motor Transport / Interstate Migrant / Plantation / Mines / Journalism / Beedi & Cigar / Building Construction / Cine Workers & Docks

The Industrial Relations Code, 2020 (IR Code)

3 Labour Laws Combined:

Trade Unions Act / Standing Orders / Industrial Disputes Act

The Social Security Code, 2020 (SS Code)

9 Labour Laws Combined:

PF / ESIC / Employees’ Compensation / Gratuity / Maternity Benefit / Employment Exchange / Cine Workers Welfare / Building Construction Workers Welfare / Unorganized Workers Social Security

Objective

• Ensuring simplification
• Ease of doing business
• Extending statutory protection to gig workers, platform workers and unorganized sector workers

Implementation Process & Probable Timeline

Labour Codes have been formally brought into effect 21 November 2025.

Implementation Process

• Within 45 days Central and State draft rules are expected to be published – expected by 2nd week of the Jan-26
• A 45-day stakeholder comment period will be opened for objections/suggestions. – Expected by end of the Feb-26
• March-26 – Discussion and decision period
• 1st April 2026 – Expected date of implementation

This date also coincides with new financial year, hence, facilitate financial planning and adjustment to the Organization.

# The existing rules will continue to apply until corresponding rules, regulations, and schemes are notified under each Code.

Definition under New Labour Code

The new definition of “Wages”:

• Inclusive part: Basic Pay, Dearness Allowance and Retaining Allowance. These components must constitute at least 50% of the monthly gross salary and should be equal to or higher than the Minimum Wages declared by the appropriate Government from time to time.
• Exclusionary part: HRA, travel allowance, overtime allowance, gratuity, commission, rewards, bonuses and employer contribution to retirement benefits. All exclusions are subject to a 50% ceiling of the monthly gross . Any excess amount shall be treated as “wages”.
• The definition of “wages” shall be considered for calculation of minimum wages, provident fund contributions, employee state insurance contributions, maternity benefit, employee compensation, gratuity, statutory bonus, and other wage-related provisions.

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• Concept of Floor Wages is being introduced (may be applicable for gig and platform employees) and minimum wages shall apply irrespective of scheduled employment.
• Dismissal due to conviction for sexual harassment has been added as a ground for forfeiture of statutory bonus.

Who falls under the definition of “Employee”:

• Own employees
• Fixed Term Employees (FTE)
• Employees engaged directly as Temporary, Badli or Casual
• Retainers / Consultants: They will not fall under the definition of employee. However, strong agreements must be in place and rules should not alter the current engagement framework.
• Contract Employees: Being the principal employer, compliance must be ensured for employees engaged through contractors to meet organisational requirements.

Key Changes

• Basic component should be 50% of your monthly gross.
• Provident Fund: No significant changes in a PF as no change in PF base salary 15,000/-; however, in case where PF is calculated at actual will attract the increase due the criteria specified in exclusion part.
• Bonus: It will be calculated on basic wages (can not be less than MW wages) and can be forfeited in the PoSH case.
• ESIC: It will be calculated on basic wages (can not be less than MW wages).
• Professional Tax, Labour Welfare Fund: No changes.
• Overtime: Double the ordinary rate of the wages (can not be less than MW wages).
• Payment of the salary: On or before 7th of every month.
• FnF: Within 2 days fro
• Gratuity: – Regular employees – upon completion of 5 years – FTEs – Upon completion of 1 year Annual Medical Changes: Contractors’ Liability to conduct the Annual medical check up for employees above 40 years of age.
• Working hours: Shifts may extend up to 12 hours per day, while maintaining the weekly limit of 48 hours.
• Night shifts for female employees: It is permitted with their consent and subject to prescribed safety conditions.
• Appointment Letters: Issuance of appointment letters to all employees will be mandatory

Challenges

• Revising HR policies and employment contracts for all types of workers (permanent, contract, gig, platform).
• Aligning internal processes with the new legal requirements.
• Administrative adjustments for record-keeping, reporting, and payroll systems.
• Understanding new entitlements and changes in benefits, wages, or social security.
• Ensuring access to rights, especially for contract, gig, or informal workers.
• Costs for compliance: technology upgrades, training and legal consultations.
• Potential increase in employee related expenses (minimum wages, gratuity, social security contributions).
• Transition costs during policy and contract revisions.
• Adhering to mandatory procedures, reporting and record maintenance.
• Monitoring ongoing compliance to avoid legal violations.
• Risk of penalties or fines for non-compliance.
• Reduced operational flexibility in workforce deployment.
• Resource diversion from core business to compliance-related activities.
• Sector-specific challenges, particularly in construction, manufacturing and gig economy sectors.
• Communication and training for employees and managers.
• Developing policies for emerging workforce categories (gig/platform workers)

Action Points

Potential Impact on Employee Compensation

• Review the following current aspects of categories of employees: Terms of employment / engagement
• Retiral / social security benefits (Provident Fund, Gratuity and Leave encashment)
• Salary structure
• Maternity benefit
• Employees’ compensation
• Statutory bonus
• Analyze the cost impact on the company by reviewing estimated financial implications prepared on a sample or principal basis from both employer and employee perspectives and identify potential solutions along with revised action items required at the company’s end.
• Assess payroll and HR policies, including benefits, leave provisions, maternity benefits, and related areas to determine required changes or amendments.

Potential Impact on Contractual Arrangements for Manpower

• Revisiting contractual aspects relating to: Working hours
• Benefits (Provident Fund, Bonus, Gratuity, Employees State Insurance, Maternity benefits)
• Nature of work
• Furthermore, policy frameworks for newer workforce categories such as gig workers and platform workers will need to be developed in line with the recognition provided to them under the Labour Codes.
• Providing new resourcing models which are compliant and cost-effective.