India's New Labour Codes 2025: The Complete HR Compliance Guide

1. What Are India's New Labour Codes?

India's central government has undertaken the most significant reform of labour law in the country's post-independence history. 29 central labour laws have been consolidated into just 4 comprehensive Labour Codes, simplifying compliance for employers and expanding protections for workers — especially those in the unorganised sector.

For HR professionals in India, this is not optional knowledge. Whether you work in manufacturing, IT, BFSI, or a startup, these codes will change how you handle payroll, PF, ESI, gratuity, working hours, and much more.

2. The 4 Labour Codes Explained

Here is a clear summary of all four codes and which older laws they replace:

3. How the Code on Wages Changes Payroll

The Code on Wages, 2019 is the first of the four codes to receive rules notification at the central level. Here is what every payroll and HR professional must understand:

3.1 Universal Minimum Wage

For the first time in India's history, there will be a National Minimum Wage (Floor Wage). This is the absolute minimum that no state can go below. The central government sets the floor; states can set their own minimum wages above it. This ends the confusion of states having no floor.

3.2 Standardised Definition of "Wages"

Previously, every act had its own definition of "wages," causing enormous compliance confusion. The new Code creates a single, unified definition. Under this definition:

• Wages = Basic Pay + Dearness Allowance + Retaining Allowance
• Basic + DA must be at least 50% of total CTC
• Allowances (HRA, conveyance, special allowance, etc.) cannot collectively exceed 50% of total compensation

3.3 Payment Timelines

The code standardises when wages must be paid: daily workers by the end of the working day, weekly workers within 2 days of the week's end, and monthly employees by the 7th of the following month. Non-compliance attracts penalties up to ₹50,000 for a first offence.

4. Impact on PF, ESI and Gratuity

The Code on Social Security, 2020 consolidates India's social security laws and introduces transformative changes for HR professionals.

4.1 EPF (Provident Fund)

• Because the definition of "wages" standardises Basic + DA to at least 50% of CTC, PF contributions will increase for employees currently on low-basic salary structures.
• Applicability threshold remains at 20 employees but may be extended to smaller establishments over time.
• Gig workers and platform workers are brought under a separate social security fund for the first time.

4.2 ESI (Employees' State Insurance)

• ESI wage ceiling is expected to increase (currently ₹21,000/month).
• Central government empowered to extend ESI to any establishment, regardless of employee count or location.
• Better portability of ESI benefits for inter-state migrant workers.

4.3 Gratuity — The Major Change

Currently, gratuity is payable after 5 years of continuous service. The new Code proposes gratuity eligibility for fixed-term employees on a pro-rata basis, even if they have not completed 5 years. For an HR or payroll manager, this means:

• Fixed-term contract employees will accrue gratuity from day one
• Calculation: (Last drawn wages × 15 × years of service) ÷ 26
• This significantly increases the cost of fixed-term contracts for employers

5. Working Hours, Leave and Overtime Changes

The OSH Code, 2020 introduces significant changes to working hours and leave — topics that affect every HR professional managing attendance and compliance.

5.1 Working Hours — The 4-Day Week Provision

The most talked-about provision: the OSH Code allows a maximum of 12 working hours per day and 48 hours per week. This means employers can offer a 4-day working week with 12-hour shifts, provided weekly hours do not exceed 48. However, this is employer discretion, not a mandate — workers cannot be forced to work 12-hour days.

5.2 Overtime

Overtime compensation remains at double the rate of ordinary wages. The maximum daily overtime limit is 2 hours, and a worker cannot be made to work overtime for more than 125 days in a year. Overtime wages are computed on the unified "wages" definition, which typically means a higher overtime rate than before.

5.3 Annual Leave Changes

6. Industrial Relations Code: What HR Must Know

The Industrial Relations Code, 2020 is the most significant change for HR managers in manufacturing, logistics, and large enterprises. Key changes:

6.1 Fixed-Term Employment

Fixed-term employment is now legally recognised at the central level for all sectors. Previously, it was only available in a few industries. This means companies can hire employees for fixed periods without converting them to permanent status — but fixed-term employees must receive the same wages and benefits as permanent employees doing the same work.

6.2 Retrenchment and Lay-off Threshold

The threshold for requiring government permission before retrenchment or lay-off has been raised from 100 to 300 employees. This gives companies with up to 300 workers more flexibility in workforce adjustments without prior government approval.

6.3 Strike and Lockout Rules

Workers in all establishments (not just public utilities) must now give 60 days' notice before a strike. Conciliation proceedings block a strike for 60 days. This significantly reduces the risk of sudden strike action for HR managers.

6.4 Tribunal Restructuring

Industrial Tribunals and Labour Courts are being replaced by Industrial Tribunals with broader jurisdiction. A two-member tribunal (judicial + administrative) will handle disputes. This aims to reduce the backlog of labour disputes currently pending in courts.

7. HR Action Checklist for New Labour Code Compliance

Use this checklist to prepare your organisation before the codes are notified in your state:

Payroll & Compensation

• ☐ Audit all CTC structures — ensure Basic + DA is at least 50% of total CTC
• ☐ Recalculate PF contributions under the new wage definition
• ☐ Recalculate gratuity provisions, especially for fixed-term employees
• ☐ Update payroll software (GreytHR / Keka / Darwinbox) for new wage definitions
• ☐ Review bonus calculation formulae under the new Code on Wages

Contracts & Employment Terms

• ☐ Review and update offer letters and employment contracts
• ☐ Issue updated Standing Orders (applicable to establishments with 300+ workers)
• ☐ Create fixed-term employment contract templates compliant with IRC 2020

Leave & Attendance

• ☐ Update leave policies: new eligibility threshold is 180 days (down from 240)
• ☐ Revise maximum leave accumulation rules in your HRMS
• ☐ Update overtime tracking and ensure double-rate compliance

Statutory Registers & Forms

• ☐ Prepare for new unified register formats replacing multiple old registers
• ☐ Familiarise yourself with the single online registration process for establishments
• ☐ Ensure your contractor management is OSH Code compliant

8. Frequently Asked Questions

Q: When will the New Labour Codes come into effect?

The central government has notified rules for all 4 codes. However, because labour is a concurrent subject in India's constitution, states must also notify their own rules before the codes come into force in their jurisdiction. States like Maharashtra, Rajasthan, and several others have issued draft rules. HR professionals should monitor their state government's official gazette for final notification.

Q: Does the 50% basic wage rule apply to all companies?

Yes — the Code on Wages applies to all establishments covered under the code, regardless of size or industry. Both the employer and employee will be affected by this change. Companies currently maintaining a basic salary below 50% of CTC will need to restructure compensation, which will increase PF and gratuity costs.

Q: Will gig workers get EPF and ESI benefits?

The Code on Social Security creates a separate Social Security Fund for Gig and Platform Workers. The central government will define contribution rates and benefit structures. This is a landmark provision — it is the first time gig workers (Swiggy, Zomato, Ola, Uber drivers, etc.) will have any form of statutory social security.

Q: Does the new code apply to IT companies?

Yes. The OSH Code extends to establishments with 10 or more workers across all sectors, including IT, ITES, and services. The Factories Act previously applied primarily to manufacturing. The new OSH Code broadens coverage significantly, meaning IT and ITES companies in Pune, Bangalore, and Hyderabad must also comply with its provisions on working hours, safety, and leave.

Q: What are the penalties for non-compliance?

Penalties vary by code. Under the Code on Wages, first offences carry fines of up to ₹50,000; repeat offences up to ₹1,00,000 and imprisonment. Under the OSH Code, penalties range from ₹2 lakh to ₹10 lakh for serious safety violations. The codes also allow workers to file complaints directly with the labour authority via a unified portal.