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.

…………………

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

Employer Perspective

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.

Employee Perspective

Understanding new entitlements and changes in benefits, wages, or social security.

Ensuring access to rights, especially for contract, gig, or informal workers.

Financial Impact

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.

Compliance Challenges

Adhering to mandatory procedures, reporting and record maintenance.

Monitoring ongoing compliance to avoid legal violations.

Risk of penalties or fines for non-compliance.

Business & Operational Impact

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.

Considerations

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:
1. Working hours
2. Benefits (Provident Fund, Bonus, Gratuity, Employees State Insurance, Maternity benefits)
3. 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.