Key points
- The Code on Wages, Industrial Relations Code, Code on Social Security and OSH Code took effect on 21 November 2025.
- A uniform definition of “wages”, with a 50% cap on excluded components, changes PF and gratuity costs.
- Appointment letters are compulsory, and full and final settlement is due within two working days of exit.
- Central and State rules are still being notified; existing rules continue where consistent with the Codes.
After five years on the statute book, India’s four Labour Codes came into force on 21 November 2025: the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020. Together they replace 29 central labour laws.
The Codes are not just a renumbering. Several changes affect almost every employer, including technology and services businesses that were rarely touched by the old factory-era laws. Central and State rules under the Codes are still being notified, and existing rules continue to apply to the extent they are consistent with the Codes, so the detail varies by State.
The changes employers most often miss
1. What counts as “wages”
All four Codes use one definition of wages. It excludes certain components, such as house rent allowance, conveyance, overtime and some bonuses, but if those components together exceed 50% of total remuneration, the excess is added back. Wages are the base for provident fund, gratuity, bonus and other entitlements, so a structure with a low basic salary and large allowances will usually cost more under the Codes.
2. Appointment letters
Every employee must be given an appointment letter. Employers that relied on offer emails or onboarding portals should check that the terms the Codes require are covered.
3. Paying wages, and paying on exit
Monthly wages must be paid by the seventh day of the following month. When an employee is removed, dismissed, retrenched or resigns, wages due must be paid within two working days. Many full and final settlement processes take a month or more and need to change.
4. Fixed-term employees
Fixed-term employment is recognised for all sectors. Fixed-term employees must get the same hours, wages and benefits as permanent employees doing similar work, and they are entitled to gratuity on a pro-rata basis after one year of service rather than five.
5. Gig and platform workers
The Code on Social Security brings gig and platform workers within social security schemes for the first time, funded in part by contributions from aggregators linked to their turnover. Platforms should model the cost and the data they will need to report.
6. Thresholds that moved
- Standing orders, and prior government permission for lay-offs, retrenchment and closure, apply to establishments with 300 or more workers (previously 100 for permission).
- Establishments with 20 or more workers need a grievance redressal committee.
- Contractors engaging 50 or more contract workers need a licence.
- Notice of a strike is required in all industrial establishments, not only in public utility services.
7. Retrenchment and re-skilling
An employer retrenching workers must contribute fifteen days’ wages per worker to a re-skilling fund, in addition to retrenchment compensation.
8. Women at work
Women may work at night and in all types of work, with their consent and the safeguards the rules prescribe.
A checklist
- Review salary structures against the 50% rule and recalculate PF and gratuity costs.
- Issue compliant appointment letters to every employee, including existing staff.
- Shorten full and final settlement to two working days.
- Review fixed-term and contractor arrangements for parity and gratuity.
- Check contract labour numbers against the licensing threshold.
- Update standing orders, codes of conduct and grievance processes.
- Check the rules notified by each State where you employ people.
- Confirm your POSH compliance: an Internal Committee where you have ten or more employees, a policy, training and annual reports.
- Align employee data handling with the DPDP Act, which allows personal data to be processed for employment purposes in defined cases without consent.
Our employment and labour practice can review contracts, policies and pay structures against the Codes and the State rules.
Sources
This article is for general information and states the law as at 12 October 2026. It is not legal advice. For advice on your situation, contact the firm. Published by BRB Legal.
