The New Labour Codes 2026 — A Compliance Roadmap for Indian Employers

BySirish Tamvada

Editorial note: Originally drafted in October 2025 and published as part of The Tamvada Brief archive.

For the first time in over a century, India is replacing the patchwork of central labour statutes — 29 Acts in all — with four consolidated Labour Codes. If you employ even ten people in India, this is not an abstract reform. It changes how you pay wages, how you grant leave, how you provide social security, how you discipline workers, how you close a factory or branch, and how you handle a workplace injury.

The Codes have been on the statute book for years. What changed in 2025–26 is that state-level rules notifications have crossed a tipping point — once enough states notify, the Centre will appoint the date for full operationalisation. Several states have already notified draft rules; a handful have notified final rules; and the rest are in active consultation. Employers who wait for “the day the Codes commence” will be behind.

This article is the firm’s working roadmap for that compliance lift — Code by Code, change by change, with a practical action list at the end.

What the four Codes are, and what they replace

Code Year Replaces (selected)
Code on Wages 2019 Payment of Wages Act 1936; Minimum Wages Act 1948; Payment of Bonus Act 1965; Equal Remuneration Act 1976
Industrial Relations Code (IRC) 2020 Industrial Disputes Act 1947; Trade Unions Act 1926; Industrial Employment (Standing Orders) Act 1946
Code on Social Security (CoSS) 2020 EPF & MP Act 1952; ESI Act 1948; Payment of Gratuity Act 1972; Maternity Benefit Act 1961; Employees’ Compensation Act 1923; Unorganised Workers’ Social Security Act 2008
Occupational Safety, Health and Working Conditions Code (OSH&WC) 2020 Factories Act 1948; Contract Labour (Regulation and Abolition) Act 1970; Inter-State Migrant Workmen Act 1979; Mines Act 1952; and ten others

Together, the four Codes consolidate 29 central labour Acts into a unified framework. They were enacted by Parliament between 2019 and 2020. The Centre has notified large portions of the Codes but has linked full commencement to the framing of rules, both by the Centre and by every State (since labour is in the Concurrent List under Schedule VII of the Constitution).

Why this matters in 2026

Three things have shifted recently:

  1. State rules momentum. A significant number of states — including industrially active ones such as Karnataka, Tamil Nadu, Maharashtra, Gujarat and Haryana — have either notified draft rules or are in final consultation. This momentum is what changes the timing question from “if” to “when.”
  2. Centre’s stated readiness. The Ministry of Labour & Employment has repeatedly indicated that the Centre’s draft rules under each of the four Codes are ready for simultaneous notification once enough states catch up.
  3. Compliance complexity is now visible. Until states started publishing draft rules, employers could not see the operational detail. Now they can — and the detail is non-trivial. The new wage definition alone will reset most CTC structures in India.

For a business with even modest workforce numbers, the question is not whether to start preparing but how fast.

Change #1 — The new definition of “wages” (Code on Wages, Section 2(y))

This single change drives most of the downstream impact across the other three Codes. Under Section 2(y) of the Code on Wages, 2019, “wages” means all salary, including basic pay, dearness allowance and retaining allowance, but expressly excludes specified components such as bonus, conveyance allowance, house rent allowance, overtime allowance, and employer contribution to provident or pension funds.

Critically, the Code introduces a statutory cap on exclusions:

If the excluded components exceed 50% of total remuneration, the amount in excess is added back to “wages” for calculation purposes.

In practice, many Indian salary structures — particularly in IT, BFSI and ITES — historically split CTC such that “basic” is 30–35% of total pay and allowances make up the rest. Under the new definition, this approach will fail the 50% test, and the excess will be statutorily reclassified as wages.

Downstream impact:
– Provident Fund contributions (governed by the Code on Social Security) are computed on wages. A higher statutory “wages” base means higher PF deductions and higher employer PF contributions.
– Gratuity is computed on wages. A higher base means higher gratuity liability on exit.
– Bonus under the Code on Wages is also tied to wages, with new eligibility and calculation rules.
– Leave encashment and overtime are tied to wages — same direction of impact.

The net effect, for many employers, is a rise in employer CTC of 3–8% without any change in employee take-home — unless the salary structure is renegotiated to absorb part of the impact. This is the largest single payroll-redesign exercise most Indian HR teams have undertaken in a generation.

Change #2 — Industrial Relations: standing orders, retrenchment, strikes (IRC 2020)

The IRC retains the architecture of the Industrial Disputes Act 1947 but sharpens several provisions in ways employers should plan for.

(a) Standing Orders threshold raised. Under the IRC, the requirement to have certified standing orders applies to “industrial establishments” employing 300 or more workers (Section 28 read with the relevant schedule), up from the earlier 100-worker threshold. For mid-sized employers below 300, the obligation falls away — but the underlying expectation that employment terms be in writing has not gone away.

(b) Prior-permission threshold for retrenchment, layoff and closure raised to 300. Under the Industrial Disputes Act 1947, factories employing 100+ workers required state government permission before retrenching, laying off or closing down. The IRC raises this threshold to 300 workers (Chapter X). Establishments below 300 may retrench, lay off or close on the procedural conditions of notice and compensation — but without government permission. This is a meaningful flexibility for SMEs.

(c) Notice for strike and lockout extended to all industries. Earlier, the requirement to give 14 days’ notice before a strike or lockout applied only to “public utility services”. Under the IRC, the requirement extends to all industrial establishments.

(d) Re-skilling Fund. The IRC introduces a Worker Re-skilling Fund (Section 83), to be funded by employer contributions equal to 15 days’ wages for each retrenched worker. This is in addition to retrenchment compensation, not a substitute.

Counter-position to flag. Trade unions have strongly opposed the higher retrenchment threshold and the all-industry strike notice. Litigation on the constitutional validity of these provisions is foreseeable; one or more state High Courts may take a view that affects the practical position before the Supreme Court speaks. Employers should plan for the law as enacted, but read judgments as they come.

Change #3 — Social Security: gig & platform workers come in (CoSS 2020)

The Code on Social Security is the most architecturally significant of the four because, for the first time, Indian labour law expressly recognises “gig worker” and “platform worker” categories (Sections 2(35) and 2(61)).

The CoSS provides for:

  • A Social Security Fund for unorganised workers, gig workers and platform workers (Section 141)
  • A statutory contribution from aggregators — between 1% and 2% of annual turnover (subject to a cap of 5% of payments made to gig workers and platform workers) — payable into the Fund (Section 114)
  • A central registration regime for unorganised, gig and platform workers
  • Schemes for life and disability cover, accident cover, health and maternity benefits, old-age protection, and creche facilities — to be framed by the Centre and states

For aggregator businesses — ride-hailing, last-mile delivery, online services marketplaces — the 1–2% turnover contribution is the headline number. For everyone else who relies on gig labour (and a surprising number of mid-sized businesses do), the registration regime is the surface to engage with first.

In parallel, the CoSS rationalises the PF, ESI, gratuity and maternity regimes:

  • PF coverage threshold remains 20 employees but the Centre may notify a lower threshold for any establishment (Section 1(4))
  • ESI coverage is broadened — the Centre may notify ESI applicability voluntarily for establishments with even one employee under hazardous occupations (Section 1(4))
  • Gratuity payable now after one year of continuous service for fixed-term employees and working journalists (vs five years for others) — Section 53 read with Section 2(14)

Change #4 — Occupational Safety: factories, contract labour, women, working hours (OSH&WC 2020)

The OSH&WC Code consolidates the Factories Act and twelve other Acts. The shifts most relevant to commercial employers:

(a) Threshold for “factory” definition. A factory is one with 20 workers if working with power or 40 workers without power (Section 2(w)), up from 10/20 under the Factories Act 1948. This excludes many small workshops from the Factories Act regime altogether — a meaningful regulatory easing.

(b) Contract labour — applicability raised. Under the Contract Labour (R&A) Act 1970, contractor licensing applied at 20 contract workers. Under OSH&WC, the threshold is raised to 50 contract workers (Chapter XI). Employers using fewer than 50 contract workers are outside the contractor-licensing regime — but the substantive obligations (wages, safety, equal-work-equal-pay where applicable) remain.

(c) Women in night shifts. Subject to consent, women may now work between 7 pm and 6 am in all establishments, provided safety, holidays and working-hours conditions are met (Section 43). This codifies what many states had separately legislated for IT/ITES and ends a long patchwork.

(d) Inter-state migrant workers. The OSH&WC retains the Inter-State Migrant Workmen regime with two important reforms: self-registration by migrant workers, and a journey allowance payable by the employer.

(e) Working hours. The OSH&WC permits up to 48 hours per week of work, with daily caps notified by the Centre. State rules — and many already-notified state rules — set daily limits between 10 and 12 hours, with overtime above that compensated at twice the wage rate.

What this means for an Indian SME — concrete

Apply the four Codes to a 75-person Bangalore software services company today. Without a Code-compliant restructure:

  • CTC will likely rise by 4–6% on aggregate, driven mostly by higher PF and gratuity bases under the new wages definition
  • Standing orders not required (below 300), but employment letters should still cover the matters typically in standing orders
  • No prior-permission for retrenchment required (below 300) — but notice, compensation and the new 15-days-per-retrenched-worker contribution to the Re-skilling Fund apply
  • PF + ESI + gratuity continue to apply (above 20 employees for PF)
  • Standing orders and works committee triggers do not apply
  • Women in night shifts is now permissible by uniform Code regime, but the in-house security, transport and complaints-redressal architecture must be in place

Apply the same Codes to a 25-rider last-mile delivery aggregator. The aggregator-contribution (1–2% of turnover into the Social Security Fund) is a new, recurring cost line that did not exist before. The platform worker registration regime is another operational lift.

Counter-position — what reasonable lawyers disagree on

Three live ambiguities to flag for any reader making business decisions on the Codes:

  1. Date of commencement. The Centre’s stated approach is to operationalise the Codes once enough states notify rules. Whether “enough” means a quorum, a majority, or something else has not been settled in any statute or judgment. A senior advocate’s position is that the Centre may move whenever it judges it politically viable — meaning the date is not predictable from the rules-notification graph alone.
  2. Wages-definition arithmetic. The 50% exclusions cap in Section 2(y) of the Code on Wages is, on a plain reading, unambiguous. But the Centre’s draft rules have not fully clarified how to compute the cap for variable pay, commissions, ESOP grants, sign-on bonuses and similar non-standard elements. Conservative practice is to include them on the wages side; aggressive practice excludes them and litigates if challenged. Each employer should take a documented position.
  3. Gig vs employee. The CoSS recognises gig workers as a distinct category — but stops short of saying they are not, in some circumstances, employees. Existing case law on what makes someone an employee (control test, integration test, economic-reality test) is not displaced. Aggregators that exercise significant control over their workforce may yet find that individual workers are characterised as employees in a particular dispute — irrespective of the gig-worker label.

Action list — what every Indian employer should do in the next 90 days

  1. Run a Code-impact CTC model. Take your current salary structures, compute “wages” under Section 2(y) of the Code on Wages, and produce the revised PF/gratuity/bonus impact. Most companies will discover a 3–8% CTC uplift somewhere in the model.
  2. Decide on the structural response. Three common options: absorb the impact (highest cost), renegotiate at the next appraisal cycle (slowest), or restructure CTC formally with worker consent (most operationally complex).
  3. Audit your employment letters. Even below the 300-worker standing-orders threshold, employment letters should now cover working hours, leave, retrenchment terms, disciplinary process, and redressal — closer to a “mini standing order”.
  4. Map your contract labour exposure. Below 50 you avoid contractor licensing — but reclassification risk does not vanish. Confirm in writing that each principal-employer–contractor relationship is genuinely arm’s-length.
  5. If you have gig workers — register, contribute, and adjust pricing. Aggregators with platform workers must plan for the 1–2% turnover contribution as a permanent cost line.
  6. Update your POSH and complaints architecture. Read PA-01 alongside our blog The POSH Act at 12: 5 Things Indian Employers Still Get Wrong — the new OSH&WC working-hours regime intersects with POSH compliance, particularly for women in night shifts.
  7. Track your state’s rules. State labour rules are where most operational detail lives. Karnataka, Tamil Nadu, Maharashtra and Gujarat employers must monitor their respective labour-department notifications month by month.

Frequently asked questions

Q. Have the Labour Codes commenced?
A. The four Codes have been enacted by Parliament. Significant portions have been notified by the Centre, but full operationalisation depends on the framing of rules by the Centre and every state. As of the publish date of this article, this work is ongoing. Several states have notified draft or final rules.

Q. Below what employee count am I exempt?
A. Different Codes have different thresholds — PF/ESI applicability starts at 20 (CoSS), Factory definition at 20-with-power or 40-without-power (OSH&WC), contractor licensing at 50 (OSH&WC), standing orders and retrenchment-permission at 300 (IRC). Read each threshold separately; no Code exempts a business across the board.

Q. Do I have to renegotiate every employment contract?
A. Not necessarily, but you will need to reset salary structures so the components reconcile with the Section 2(y) “wages” definition. Many employers do this at the next annual appraisal cycle with documented employee consent.

Q. What is the penalty if I do not comply?
A. Each Code carries its own penal provisions, ranging from monetary fines (typically Rs 50,000 to Rs 5,00,000 per offence depending on Code and contravention) to, in egregious cases, imprisonment. The Codes also empower inspectors-cum-facilitators rather than pure inspectors — meaning a more dialogue-driven enforcement model, but not a softer one.

Q. Are gig workers now employees?
A. The Code on Social Security recognises them as a distinct statutory category with their own social-security regime — but it does not displace the general legal tests for employee characterisation. In any particular dispute, the facts of control, integration and economic reality still decide.

Sources & further reading

Primary statutes (all sourced from indiacode.nic.in):
– Code on Wages, 2019 — Act No. 29 of 2019
– Industrial Relations Code, 2020 — Act No. 35 of 2020
– Code on Social Security, 2020 — Act No. 36 of 2020
– Occupational Safety, Health and Working Conditions Code, 2020 — Act No. 37 of 2020

Regulator portals for state-rules tracking:
– Ministry of Labour & Employment — labour.gov.in
– Karnataka Department of Labour — labour.karnataka.gov.in
– Tamil Nadu Labour Welfare — labour.tn.gov.in
– Maharashtra Labour — labour.maharashtra.gov.in

Constitutional anchor:
– Constitution of India, Seventh Schedule, Concurrent List Entry 22, 23, 24

Downloads (paired with this article)

If your organisation is preparing for the Labour Codes transition and you would like a working impact-model and compliance roadmap tailored to your workforce composition, book a free consultation on TopMate or reach the firm directly.

This article is informational and educational. It is not legal advice. For matters specific to your business, please consult counsel.

Last updated 12 May 2026. Verified citations log: see Content/.citation_log.md. Voice gate: pending. Research pass: pending.

Get the branded PDF of this article — plus our two other pillar guides.

Drop your email below and we’ll send you the full Knowledge Centre PDF library:
Labour Codes 2026, Arbitration Playbook, and the IBC Founder’s Survival Guide.
One email, no spam, unsubscribe anytime.

Similar Posts