India's New Labour Codes

On November 21, 2025, India implemented one of the most comprehensive labour reforms since independence. The Government of India officially notified four Labour Codes that consolidate 29 separate labour laws into a unified, modern framework. For employers across India, this marks a pivotal moment that will reshape HR policies, payroll structures, and compliance requirements.

If you are wondering how these changes affect your organization, this guide breaks down everything you need to know about India's new labour codes and what actions you must take now.

What Are the Four Labour Codes?

The four Labour Codes replace India's fragmented labour legislation with a streamlined system:

1. Code on Wages, 2019 – Guarantees statutory minimum wages and timely payment for all workers
2. Industrial Relations Code, 2020 – Governs employment contracts, layoffs, and dispute resolution
3. Code on Social Security, 2020 – Expands social security coverage to gig workers, platform workers, and the unorganized sector
4. Occupational Safety, Health and Working Conditions Code, 2020 – Establishes workplace safety standards and health requirements

These codes affect every employer in India, from MSMEs to large corporations, across all sectors including manufacturing, IT, retail, hospitality, and services.

Why This Reform Matters for Employers

India's previous labour laws dated back to the 1930s-1950s, created during the colonial and early post-independence era. According to the Ministry of Labour & Employment, social security coverage has increased from approximately 19% of the workforce in 2015 to over 64% in 2025. The new codes aim to deepen this expansion while simplifying compliance.

The reform addresses three critical business challenges:

• Regulatory complexity – Multiple registrations, licenses, and returns are now consolidated
• Compliance costs – Streamlined processes reduce administrative burden
• Legal ambiguity – Clear definitions eliminate multiple interpretations

5 Major Changes Every Employer Must Know

1. Mandatory Appointment Letters for All Workers

Under the new codes, every worker—whether permanent, fixed-term, contract, or gig—must receive a formal appointment letter detailing designation, wages, and entitlements. This eliminates informal employment arrangements and creates documented proof of employment terms.

Action Required: Review your hiring processes and ensure appointment letters are issued within the stipulated timeframe for all categories of workers.

2. Redefined Wage Structure (50% Rule)

The Code on Wages mandates that basic wages must constitute at least 50% of total compensation. This directly impacts:

• Provident Fund (PF) contributions
• Gratuity calculations
• Overtime payments
• Leave encashment

Financial Impact: Many organizations that historically split compensation heavily into allowances will see increased statutory contribution costs. While take-home salary may reduce, employees' retirement corpus will increase substantially.

3. Fixed-Term Employees Get Equal Benefits

Fixed-term employees are now entitled to parity with permanent staff in terms of:

• Pay and allowances
• Leave and medical benefits
• Social security coverage
• Gratuity after just one year (instead of five)

This change is significant for sectors like automotive, electronics, and project-based industries that rely on fixed-term contracts.

4. Social Security for Gig and Platform Workers

For the first time, gig workers and platform workers receive formal legal recognition. Platform aggregators must contribute 1-2% of annual turnover (capped at 5% of payments to workers) to a social security fund.

Who This Affects: E-commerce platforms, food delivery apps, ride-sharing services, and any business using gig workers must budget for these contributions.

5. Increased Applicability Thresholds

The codes raise several compliance thresholds, providing relief to smaller establishments:

• Factory Act applies at 20 workers with power (previously 10)
• Standing orders required at 300 workers (previously 100)
• Contract Labour Act at 50 workers (previously 20)
• Layoff approval threshold raised to 300 workers (previously 100)

Industry-Specific Impacts

IT and ITES Sector

• Salary release mandatory by the 7th of every month
• Women permitted to work night shifts with consent and safety measures
• Fixed-term employment ensures social security benefits

Manufacturing and Export Sectors

• Fixed-term workers receive full PF, gratuity, and social security
• Women allowed in all roles, including heavy machinery and underground mining (with consent)
• Enhanced flexibility in workforce management

Retail and Hospitality

• MSME workers guaranteed minimum wage, canteens, and rest facilities
• Standard working hours enforcement with double overtime pay
• Timely wage payment requirements

What Employers Must Do Now

Immediate Actions (Within 30 Days)

1. Audit current HR policies – Review employment contracts, appointment letter templates, and wage structures
2. Recalculate salary structures – Ensure compliance with the 50% basic wage rule
3. Update HRMS systems – Configure payroll software to accommodate new definitions and calculations
4. Identify coverage – Determine which codes apply based on worker count and industry

Medium-Term Actions (Within 90 Days)

1. Train HR teams – Conduct workshops on new compliance requirements
2. Review vendor agreements – If using contract workers, ensure principal employer obligations are clear
3. Implement appointment letter systems – Create processes for issuing formal letters to all worker categories
4. Assess gig worker exposure – Calculate potential social security contributions if using platform workers

Long-Term Strategic Planning

1. Monitor state-level rules – Labour is a concurrent subject; states will issue their own implementation rules
2. Build compliance frameworks – Establish regular audit mechanisms
3. Budget for increased costs – Factor in higher PF contributions, gratuity provisions, and social security payments

State-Level Implementation Timeline

While the central codes are effective from November 21, 2025, implementation specifics depend on state-level rules. According to a December 2024 Ministry update, all 36 states and union territories are expected to complete harmonization and pre-publication of draft rules by March 31, 2026.

Multi-state employers should prepare for potential regulatory variations across different states during this transition period.

Common Compliance Mistakes to Avoid

1. Delaying salary structure revisions – Non-compliance with the 50% wage rule can result in penalties
2. Not issuing appointment letters – This is now mandatory for all workers, including temporary and contract staff
3. Ignoring gig worker obligations – Platform businesses must account for social security contributions
4. Overlooking women-specific provisions – Night shift permissions require documented consent and safety protocols
5. Assuming existing policies suffice – Old HR manuals and contracts need comprehensive updates

Partner with Workforce Experts

The new labour codes represent a fundamental shift in how employers must manage their workforce. From recruitment to retirement, every aspect of the employee lifecycle is affected by these changes.

At PERSOL India, we help organizations navigate these complex regulatory requirements while building workforce strategies that drive business growth. Our expertise in permanent staffing, executive search, contract staffing, and GCC hiring positions us to guide you through this transition seamlessly.

Need help ensuring compliance with the new labour codes? Contact our workforce consulting team for a comprehensive audit of your HR policies and personalized implementation support.