Navigating India’s New Labour Codes: What Employers Need To Know

Introduction

As of November 21, 2025, the Labour Codes represent a major change for India in terms of their labour and employment law regime, impacting over 29 central labour law statutes. This major change occurred with the passage and implementation of the Code on Wages, 2019; the Industrial Relations Code, 2020; the Occupational Safety, Health, and Working Conditions Code, 2020; and the Code on Social Security, 2020 (collectively referred to as the “Labour Codes”).¹
Despite references in public communications to a transition period, the implementing notifications provide no statutory cushion for employers, employees or authorities to transition into the new regime. Compliance obligations have therefore arisen immediately. This urgency is further intensified by the fact that only a limited number of States have notified final rules under all four Codes, with most States operating under draft rules or legacy frameworks. Employers must consequently navigate a composite legal framework consisting of the Labour Codes read with existing rules, notifications and circulars issued under repealed legislation, insofar as these do not conflict with the Codes.

Architecture of the Labour Codes and Governing Interpretation Principles

The Labour Codes are structured to override any contrary provision contained in existing laws, employment contracts, policies, awards or settlements, regardless of when such arrangements were created. As a result, legacy employment structures that are inconsistent with the Codes stand invalidated by operation of law.

Equally significant is the continuation of subordinate legislation under repealed laws. In accordance with Section 24 of the General Clauses Act, 1897 and corresponding provisions in each Code, rules framed under the erstwhile legislations continue to apply until replaced, provided they are not inconsistent with the Codes. Accordingly, the current compliance landscape is fragmented and requires careful reconciliation of Code provisions with surviving rules at both the Central and State levels.

Key Re-Definition and Extension of Wage Coverage

Wages and “50% Rule”

“Wages” are now defined more broadly than they were previously. The Codes will continue to have specific exclusions for some types of pay (i.e., house rent, conveyance, overtime payments and contributions to a retirement fund), but any element of pay that is not specifically excluded from the definition and is within the general definition will likely be classified as wages. Further, whenever an excluded component of pay exceeds 50% of an individual’s total compensation, the portion above 50% will be viewed by statute as being wages. In addition, any remuneration provided in a non-cash form that would otherwise not be classified as wages will count toward total compensation but limited to 15% of an individual’s total compensation.

This change in the definition of wages will have a substantial effect on the calculation of payments made under law, as well as other statutory payment obligations, such as a gratuity, severance pay, social security contributions, notice and payment of unused annual leave. Therefore, employers will need to remodel their pay structures and identify any cost increases that may be associated with the re-definition of wages.

Expanded Scope of “Employee” and “Worker”

The definition of “employee” now includes managerial, supervisory and administrative personnel, extending statutory wage and occupational safety protections to senior management employees who were largely excluded under the earlier regime. The definition of “worker”, while broadly aligned with the concept of “workman” under the Industrial Disputes Act, 1947, now expressly includes sales promotion employees and working journalists, excludes apprentices, and raises the supervisory wage exemption threshold to INR 18,000 per month.²

These changes substantially broaden the class of persons entitled to statutory protections under the Labour Codes.

Employer – Enhanced Responsibility

‘Employer’ has been redefined with greater scope to include employers, contractors, legal representatives of deceased employers and also individuals controlling the affairs of an organisation including managers and managing directors. The responsibilities of an employer extend to contract workers who are indirectly employed thus expanding the scope of accountability beyond merely those who are directly employed.

Appropriate Government

The definition of “appropriate Government” varies between the four Codes and has far-reaching impacts on how to understand which rules apply, who to notify and what compliance authority applies. The determination of the appropriate Government is particularly important for private establishments, especially those operating across several states.

Legislative Framework – Compliance Focused Regulation³

The Labour Codes are intentionally moving from a system of punitive enforcement of labour laws to a mechanism that encourages compliant behaviour. Less serious offences have been decriminalised with the exception of repeat or serious violations where imprisonment is still a penalty. The concept of the Inspector-cum-Facilitator addresses this shift and includes enforcement powers as well as education and advice.

Simultaneously, monetary penalties have been greatly increased; fines can now reach up to “INR 10 lakhs (1 million)” or “INR 20 lakhs (2 million)” in the case of repeat violations. The new codes also contain provisions allowing offenders to compound an offence, giving offenders the opportunity to rectify their offence before prosecution, establish a limitation period for launching proceedings, and provide that the civil courts have no jurisdiction to hear any case if there is a statutory remedy available to the party.

Key Substantive Provisions and Their Impact

Code on Wages

The Wage Code is intended to eliminate discrimination in pay based on sex. Both the wage component and any exclusionary components will be taken into account to ensure that a worker receives equal compensation for performing the same work as another worker (for example, women receiving lower wages than men performing the same job). The concept of “scheduled employment” and the concept of minimum wage have been eliminated.

Therefore, every employee is entitled to minimum wage protections across all industries, including an established floor wage as determined by a central authority. In addition, when paying employees their wages, there are no limitations regarding payment to employees with respect to salaried employees; therefore, all employees including managers are protected under the Wages Act with respect to the methods of payment, time frames for payment, limitations on the amount of deductions and provisions for the resolution of disputes between employees and their employers.

As with the Wages Code, the Industrial Relations Code has increased the threshold for governmental approval of lay-offs, termination of employment and shut down of businesses. The threshold of the code now allows for the lay-off of 300 employees rather than 100 employees. This amendment gives greater operational flexibility to smaller employer organisations because it removes the requirement to request permission to cease employment of workers for redundancy. The IR Code allows for the establishment of a “Worker’s Re-Skilling Fund” for employer continuation of the employment of employees who have been terminated and/or laid off due to company closure and creates an obligation of funding for training of workers who are hired after being terminated as required by the code.⁴

As previously mentioned, standing orders will be deemed as certified under the provisions of the Industrial Relations Code for employers who employ 300 or more employees. In addition, the provisions of this act mandate that all trade unions be recognised by the employer, and the employer and trade unions will constitute collective bargaining in establishing a defined period of negotiating unions or councils, as well as the restriction of strikes and lockouts by the employer. Additionally, employers must also establish a Grievance Redressal Committee for establishments with twenty or more employees.

OSH Code

The Occupational Safety, Health, and Working Conditions Code creates an environment where all contractors must be registered and licenced and must have a national licence to be eligible for work. If a contractor does not comply with the registration requirements, there are severe penalties imposed by law. The OSH Code allows for women to work during the night with their consent, provided there are adequate safety measures in place.

The OSH Code introduces a uniform regulatory threshold for all categories of contract labour, replacing fragmented standards under the earlier regime. It generally prohibits the engagement of contract labour in core activities, while permitting limited statutory exceptions. Significantly, the primary responsibility for providing welfare and occupational health facilities to contract workers is placed on the principal employer. The Code also clearly delineates the reciprocal duties of employers and employees with respect to workplace health, safety, and working conditions, thereby strengthening accountability across the employment relationship.

Social Security Code

The Social Security Code combines the applicability thresholds across all social security laws, creates a single social security registration process for employees, provides for clarity in transition from provident fund and pension to social security/health insurance, recognises fixed-term employment as a recognised form of employment, and provides for equality of wages and statutory benefits for fixed-term employees who have completed one year of service. The Social Security Code mandates compulsory gratuity coverage for fixed-term employees and introduces greater flexibility by permitting employers to provide crèche facilities on a shared or proportionate basis, rather than requiring full-time establishments in all cases. The Code also significantly expands social security protections for workers in the gig and platform economy such as ride-hailing drivers and delivery personnel by establishing a framework that enables the creation of dedicated social security schemes funded through a combination of employer contributions, government support, and worker contributions.

Conclusion

Immediately, the new Labour Codes, with no transition period or buffers, have dramatically and immediately changed India’s approach to employment law. The shift in enforcement philosophy has been from penalising non-compliance, to facilitating employers in achieving compliance, however, the penalties associated with serious or ongoing non-compliance have greatly increased as well, so employers will need to adopt a proactive and strategic approach to remain compliant by continuously monitoring any new legislative developments that become effective and adjusting their written policies, contracts, payroll systems, and operational practices to comply with the new Labour Codes.

While new Labour Codes create a challenge to be compliant with the law; there are also opportunities created by the new Labour Codes to create a modernised approach to employment practices, increase the support of the labour force, and increase the level of transparency and trust between employers and employees in an extremely competitive labour market. To be a successful employer in today’s highly competitive and demanding marketplace, robust compliance with new Labour Codes should be considered both a legal necessity and a strategic need. Employers can no longer make last-minute preparations for compliance; they must take immediate action.

1. https://labour.gov.in/sites/default/files/pib2192463.pdf ↩︎
2. https://labour.gov.in/sites/default/files/labour_code_eng.pdf ↩︎
3. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2192524&reg=3&lang=2#:~:text=The%20four%20Labour%20Codes%20include,and%20Working%20Conditions%20Code%2C%202020. ↩︎
4. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2192524&reg=3&lang=2#:~:text=The%20four%20Labour%20Codes%20include,and%20Working%20Conditions%20Code%2C%202020. ↩︎