In one of the most significant labour law transformations in India’s history, the Government of India has implemented the New Labour Codes 2025. These codes replace 29 fragmented, outdated labour laws with four consolidated frameworks aimed at simplifying compliance, expanding worker protections, and aligning India’s labour governance with global standards. The Government officially made the Labour Codes effective on 21 November 2025.
This blog explains what the new labour codes are, who they affect, key changes, compliance requirements, real impacts on payroll and worker benefits, and what employers must do now. If your business, SME, or educational institution operates in India, this guide is critical.
Why the New Labour Codes Matter?
Labour regulations previously operated under 29 separate statutes, many of which dated back to the pre-independence era. This created complexity, overlaps, multiple definitions, compliance burdens, and gaps in worker protections. The new labour codes integrate these into four comprehensive statutes covering wages, industrial relations, social security, and occupational safety.
The aim is to:
- Simplify and rationalise labour law compliance.
- Guarantee worker rights like minimum wages, timely payments, and social security.
- Expand coverage to include gig, platform, and informal sector workers.
- Provide clarity on payroll obligations and workplace safety.
- Modernise labour law to reflect today’s employment landscape, including remote and contract work.
In this guide, you’ll find detailed explanations of the key provisions and practical steps for implementation.
What Are the Four Labour Codes?
The New Labour Codes consist of the following:
- Code on Wages, 2019 – Governs minimum wages, payment timelines, overtime, bonus, and wage definitions across all workers.
- Industrial Relations (IR) Code, 2020 – Regulates standing orders, layoffs, retrenchment, dispute resolution, and collective bargaining.
- Code on Social Security, 2020 – Provides a unified social security framework including provident fund (PF), insurance, maternity benefits, gratuity, and welfare for gig and platform workers.
- Occupational Safety, Health and Working Conditions (OSHWC) Code, 2020 – Focuses on workplace safety, health standards, working hours, welfare facilities, and compliance registers.
These codes replace multiple old acts like the Minimum Wages Act, Payment of Wages Act, Employment Exchanges (Compulsory Notification of Vacancies) Act, and a host of safety and welfare laws.
Implementation Status: What’s In Force and What’s Next
The Government made the Labour Codes effective 21 November 2025, marking a historic overhaul of India’s labour ecosystem.
However, while the Codes are legally in force, detailed Central and State Rules are still being finalised and notified. These rules will provide operational clarity on almost all compliance requirements, from wage notifications to safety standards.
As of late 2025:
- Central draft rules have been released and are open for stakeholder feedback.
- Many states are at different stages of notifying their rules.
- Until state rules are complete, dual compliance may be required — meaning enterprises may need to adhere to existing state statutes and the new codes.
There are discussions at the Ministry of Labour that full operational rollout could align with the new financial year (1 April 2026) to better harmonise employer compliance and payroll cycles.
This transition period makes it vital for employers to begin compliance planning now.
Why the Labour Codes Matter for Employers, SMEs & Schools?
For Employers
- The Labour Codes standardise definitions and compliance requirements, reducing ambiguity across multiple legislations.
- They introduce single registration, single licence, and single annual return, simplifying administrative obligations.
- Employer obligations like appointment letters, timely payment of wages, record maintenance, PF/ESIC filings, and safety standards are now more clearly enforced.
For SMEs
- SMEs now operate under a uniform labour law regime, eliminating previous state-specific variances.
- The Codes expand social security coverage, including the formal inclusion of gig and platform workers, which was previously unclear.
- Compliance digitisation and integrated filing systems aim to reduce compliance costs and complexity.
For Schools & Educational Institutions
- Schools that hire staff beyond certain thresholds are required to comply with wage codes, PF/ESIC norms, safety provisions, and record-keeping standards.
- Even small institutions may be affected where the Social Security Code applies.
Minimum Wages Under the New Labour Codes
Universal Minimum Wage
Under the Code on Wages, minimum wage protections now apply to all workers, irrespective of industry or sector — a significant departure from the old system where minimum wages were applicable only to scheduled employments.
National Floor Wage
The Code establishes a national floor wage, which prevents any state from fixing wages below the minimum threshold. The intent is to reduce regional wage disparities.
Wage Definition
The definition of wages now uniformly includes basic pay, dearness allowance, and retaining allowance, while placing conditions on allowances beyond 50% of total compensation.
Overtime Pay
Overtime must be compensated at double the wage rate for hours worked beyond prescribed limits.
Wage Payment Timelines
The Code mandates precise timelines for wage payment:
- Monthly salaries must be paid by the 7th of the following month.
- Upon termination, all dues must be cleared within two working days.
Bonus Requirements
Bonus payments under the wage code are structured to ensure equitable distribution among eligible employees, with minimum and maximum payout proportions defined.
Impact on Salary Structure, Payroll & Employer Costs
50% Wage Rule
One of the most impactful changes is the “50% wage rule”. Employers must ensure that basic pay plus dearness allowance constitute at least 50% of the total cost to the company (CTC). If allowances exceed 50%, the excess is treated as wages for statutory calculations like PF and gratuity.
This change means:
•Higher employee PF contributions (12% of basic).
•Higher employer PF contributions.
•Higher gratuity liabilities.
•Possible reduction in take-home salary if CTC is not restructured properly.
Redesigning salary structures is now essential for compliance. Fiscal experts warn that increased gratuity liability due to these changes must be recognised as an expense in financial statements.
Payroll Adjustments
Employers need to:
•Reconfigure payroll to meet the new wage definitions.
•Ensure compliance with overtime pay rules.
•Update payroll systems for timely payouts and statutory contribution calculations.
•Align payroll cycles with compliance deadlines.
Social Security: PF, ESIC, Gratuity & Gig Workers
Provident Fund (PF)
PF coverage is extended to a broader set of workers. Under the Social Security Code:
- PF is now applicable to fixed-term, contract, gig, and platform workers, bringing more workers into the formal social security net.
- PF account portability is strengthened through Aadhaar-linked Universal Account Numbers.
ESIC (Employee State Insurance Corporation)
ESIC coverage has been made Pan India, including hazardous establishments regardless of size. Small establishments may operate voluntarily, but coverage is mandated once safety thresholds are hit.
Gratuity
Fixed-term employees now qualify for gratuity after one year of continuous service, instead of the earlier requirement of five years.
Social Security for Gig & Platform Workers
For the first time, the Social Security Code clearly defines:
- Gig workers,
- Platform workers,
- Aggregators.
Aggregators may be mandated to contribute a percentage of their annual turnover towards welfare funds for platform and gig workers.
These changes are intended to bring informal and technology-mediated employment within statutory protections, addressing a longstanding gap in India’s labour framework.
Hiring, Retrenchment & Industrial Relations
Industrial Relations Code
The Industrial Relations Code covers:
• Standing orders,
• Grievance redressal,
• Layoffs, retrenchments, and closures.
Thresholds for Government Approval
The requirement for government approval for layoffs and closures has increased from 100 to 300 employees, giving more flexibility to employers.
Reskilling Fund
Employers must contribute to a Reskilling Fund upon retrenchment, typically based on a formula relative to last drawn wages, helping impacted workers with training and redeployment.
Standing Orders
Companies with 20 or more workers must prepare and maintain standing orders that align with the new definitions and obligations under the IR Code.
Occupational Safety, Health & Working Conditions (OSHWC Code)
The OSHWC Code consolidates workplace health and safety standards, including:
- Mandating welfare facilities (canteens, drinking water, rest areas).
- Regulating working hours: minimum 8 hours/day and maximum 48 hours/week.
- Requiring free annual medical check-ups for workers aged 40 and above.
- Stipulating digital maintenance of statutory registers for wages, safety audits, and incident reports.
Employers must assess workplace conditions and ensure compliance with OSHWC provisions to avoid penalties.
Penalties & Enforcement Under the New Codes
Non-compliance with the Labour Codes can lead to:
- Financial penalties,
- Suspension of licences,
- Prosecution, depending on the severity of the violation.
Common areas of penalties include:
- Non-payment of minimum wages,
- Delayed wage payments,
- Failure to register under applicable codes,
- Safety standard violations,
- Non-issuance of appointment letters.
Employers should audit their compliance status regularly to avoid these penalties as rules become fully operational.
Applicability to Schools & Educational Institutions
The Labour Codes apply broadly, including to schools and similar institutions, when thresholds for employees are met. Applicable areas include:
- Wage structure compliance,
- PF & ESIC registration and contributions,
- Safety and OSHWC Code welfare requirements,
- Standing orders for larger staff rosters.
Even small educational institutions must review their HR and payroll processes to ensure compliance.
Dispute Resolution & Worker Grievances
The new framework emphasises digital and transparent mechanisms for dispute resolution, grievance redressal committees, and timelines for handling labour disputes. Employers should establish clear internal policies aligned with IR Code provisions to avoid escalations.
State Rule Notifications & Dual Compliance
Because states must notify their own operational rules under each Code, employers might need to comply with both the New Labour Codes and certain legacy state laws until full alignment occurs. This dual compliance phase is expected to continue through the first half of 2026.
Trade Union Reactions & Worker Movements
The changes have not been without controversy. Trade unions in several regions have protested, claiming that the new codes could weaken worker protections and erode rights. These demonstrations reflect some resistance from labour groups, though the Government maintains the reforms are necessary for modernisation.
Practical Checklist for Employers
To prepare for full compliance, employers should:
- Review job classifications and worker categories.
- Redesign salary structures to meet the 50% wage rule.
- Ensure appointment letters for all employees.
- Register under single labour compliance portals.
- Update payroll systems for social security, overtime, and wage timelines.
- Conduct workplace safety evaluations and OSHWC compliance.
- Draft or revise standing orders.
- Train HR teams on new dispute and grievance mechanisms.
- Monitor state rule publications and implement changes promptly.
- Plan for financial impacts, including higher PF and gratuity liabilities.
Conclusion
The New Indian Labour Codes 2025 mark a major shift in India’s labour governance. Replacing decades old laws with unified, modern statutes, these Codes affect wages, social security, workplace safety, industrial relations, and worker protections across the economy. Employers, SMEs, and educational institutions must align with the new framework to ensure legal compliance and operational stability.
The transition period offers a window for strategic implementation, payroll revisions, compliance audits, and safety upgrades. Understanding these Codes today will position your organisation ahead of compliance risks tomorrow.
How We Help – Services for Labour Code Compliance?
We provide industry-focused solutions to navigate the New Labour Codes:
- Labour Law Compliance Audits
- Payroll Restructuring & Advisory
- PF/ESIC Registration & Filing Support
- OSHWC Implementation & Safety Compliance
- HR Policy Realignment & Documentation
Contact us to ensure full compliance with the New Labour Codes 2025 and protect your organisation from regulatory risks.
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