India's New Labour Codes 2025: What Changed and How It Affects Your India Hiring

The Biggest Labour Law Overhaul in Indian History

India is consolidating 29 existing labour laws — some dating back to the 1940s — into 4 comprehensive labour codes. This is the most significant change to Indian employment law in decades, and it affects every company employing people in India, whether through a local entity or an EOR.

The four codes are:

1. Code on Wages, 2019 — Passed by Parliament, rules notified
2. Industrial Relations Code, 2020 — Passed by Parliament, rules notified
3. Code on Social Security, 2020 — Passed by Parliament, rules notified
4. Occupational Safety, Health and Working Conditions Code, 2020 — Passed by Parliament, rules notified

While the central government has finalized the rules, implementation requires state governments to also draft and notify their own rules (since labour is a concurrent subject under the Indian Constitution). This state-level implementation has been gradual, with enforcement varying by state.

Code on Wages, 2019

This code replaces four existing laws: the Payment of Wages Act (1936), Minimum Wages Act (1948), Payment of Bonus Act (1965), and Equal Remuneration Act (1976).

Key Changes

New Definition of “Wages”

This is the single most impactful change. Under the new code, wages must constitute at least 50% of total remuneration. Any allowances exceeding 50% of total remuneration will be reclassified as wages.

What this means in practice:

Current Structure	New Code Requirement
Basic: ₹30,000 (30% of CTC)	Not compliant — wages must be ≥50%
Basic: ₹50,000 (50% of CTC)	Compliant
HRA + Special: ₹70,000 (70%)	Allowances capped at 50%

Impact: Companies currently structuring basic salary at 35–40% of CTC will need to restructure. This increases:

• PF contributions (calculated on basic/wages)
• Gratuity liability (calculated on basic/wages)
• Overtime calculations (based on wages)

While it decreases:

• Employee take-home pay (higher PF deduction)
• Flexibility in salary structuring

Universal Minimum Wage

The code introduces a floor wage set by the central government, below which no state can set its minimum wage. Currently, minimum wages vary dramatically across states and are set independently. The floor wage creates a national minimum.

Equal Pay Provisions

The code mandates equal remuneration for equal work regardless of gender. While the Equal Remuneration Act already existed, the new code broadens its scope and strengthens enforcement.

Bonus Applicability

Bonus provisions now apply to all establishments employing 20 or more persons (same as before, but the definition of “wages” for bonus calculation changes with the new wage definition).

Industrial Relations Code, 2020

This code replaces the Trade Unions Act (1926), Industrial Employment (Standing Orders) Act (1946), and Industrial Disputes Act (1947).

Key Changes

Fixed-Term Employment

The code formally recognizes fixed-term employment as a valid employment type. Fixed-term employees are entitled to:

• Same wages and benefits as permanent employees doing the same work
• Pro-rata gratuity regardless of contract duration (currently, gratuity requires 5 years of service)
• Same leave, hours of work, and other service conditions as permanent employees

Impact for foreign companies: If you hire someone on a 1-year fixed-term contract through an EOR, they’re entitled to pro-rata gratuity when the contract ends. This changes cost calculations for short-term engagements.

Retrenchment and Layoff Thresholds

• Establishments with 300 or more workers (increased from 100) need prior government approval for retrenchment, layoff, or closure
• Establishments below 300 workers can retrench with 60 days’ notice to the government (but no prior approval needed)

Impact: This makes it easier for medium-sized establishments to restructure, while maintaining protections for large workforces.

Standing Orders

Standing orders (workplace rules) are now mandatory for establishments with 300 or more workers (previously 100). Smaller establishments can adopt model standing orders or frame their own.

Strike and Lockout Rules

• Workers in all establishments (not just public utilities) must give 14 days’ notice before striking
• Strikes during conciliation proceedings and within 60 days of conclusion of proceedings are prohibited

Code on Social Security, 2020

This code consolidates nine laws including the EPF Act, ESI Act, Payment of Gratuity Act, Maternity Benefit Act, and the Employees’ Compensation Act.

Key Changes

Gig and Platform Workers

For the first time, Indian law recognizes gig workers and platform workers and proposes a social security framework for them. The government can formulate schemes for:

• Life and disability insurance
• Health and maternity benefits
• Old age protection
• Any other benefit determined by the government

Aggregators (platforms) may be required to contribute 1–2% of annual turnover for a social security fund for gig workers.

Impact: This doesn’t directly affect traditional EOR employment, but it signals India’s regulatory direction for non-traditional work arrangements.

Gratuity for Fixed-Term Employees

As mentioned above, gratuity on a pro-rata basis is available to fixed-term employees regardless of contract duration. The 5-year minimum service requirement does not apply to fixed-term contracts.

ESI Coverage Expansion

The code allows the government to expand ESIC coverage to:

• Establishments in hazardous industries regardless of employee count
• Plantation workers
• Unorganized workers (through notification)

The wage ceiling for ESI coverage (currently ₹21,000/month) can be revised by notification without requiring a legislative amendment.

PF Coverage

The Employees’ Provident Fund provisions remain broadly similar, but the code gives the government power to:

• Extend PF coverage to establishments with fewer than 20 employees
• Extend coverage to new classes of establishments through notification

Maternity Benefits

The code consolidates maternity benefit provisions:

• 26 weeks of paid maternity leave for the first two children
• 12 weeks for the third child onwards
• 12 weeks for adoptive and commissioning mothers
• Work-from-home option may be provided after the leave period (at employer’s discretion)

Aadhaar-Based Registration

The code introduces Aadhaar-based registration for social security schemes. Employers can register establishments and employees using Aadhaar, simplifying the enrollment process.

Occupational Safety, Health and Working Conditions Code, 2020

This code replaces 13 existing laws covering factories, mines, dock workers, building workers, contract workers, and others.

Key Changes

Working Hours

• Maximum 8 hours per day of work
• Maximum weekly hours to be prescribed by the government (expected to be 48 hours)
• Overtime capped at 125 hours per quarter (previously varied by law)
• Overtime wages at twice the normal rate

Contract Workers

• The code applies to establishments employing 50 or more contract workers (increased from 20)
• Contract workers are prohibited in core activities of the establishment (with exceptions)
• Contract workers are entitled to wages not less than the regular workers for similar work

Inter-State Migrant Workers

• Provisions for inter-state migrant workers apply to establishments employing 10 or more such workers
• Employers must provide displacement allowance, journey allowance, and other prescribed facilities

Annual Health Check-ups

Employers must provide free annual health check-ups for employees above a prescribed age (to be notified by the government).

Timeline: Where Are We in 2026?

Milestone	Status
Central rules notified	Complete for all 4 codes
State rules notification	In progress — ~20 states have notified rules for at least some codes
Full enforcement	Phased — varies by state
Compliance deadline for employers	Expected to be announced with adequate transition period

Practical reality: While the codes are law, full enforcement depends on state-level readiness. Companies should prepare for compliance but may have a transition window.

What Foreign Employers Need to Do Now

1. Review Salary Structures

The 50% wages requirement is the most immediate impact. If your employees’ basic salary is below 50% of total remuneration, you need a restructuring plan.

Action: Work with your EOR to model the impact of restructuring on employer costs (higher PF, gratuity) and employee take-home.

2. Update Fixed-Term Contract Policies

If you use fixed-term contracts, budget for pro-rata gratuity. A 1-year contract with ₹80,000 monthly basic will now include approximately ₹46,154 in gratuity (instead of zero under the old 5-year rule).

3. Review Working Hours and Overtime Policies

Ensure your policies align with the new working hours limits. If employees regularly work more than 8 hours, overtime at 2x the normal rate must be factored in.

4. Update Leave Policies

The new codes standardize leave provisions. Ensure your leave policy meets or exceeds the new minimums for earned leave, sick leave, and casual leave.

5. Prepare for Increased Social Security Contributions

Higher base wages (due to the 50% requirement) mean higher PF contributions. Model the cost impact:

Example: Employee with ₹20L CTC

Scenario	Monthly Basic	Monthly Employer PF	Annual PF Cost Increase
Current (40% basic)	₹66,667	₹8,000	—
New Code (50% basic)	₹83,333	₹10,000	₹24,000

For a 10-person team, that’s ₹2.4 lakh/year in additional PF costs.

How EOR Providers Should Handle the Transition

A good EOR provider will:

1. Proactively communicate the impact of the new codes on your employees’ salary structures
2. Model the cost impact before implementation, giving you time to budget
3. Restructure CTC to comply with the 50% wages requirement while minimizing disruption to employee take-home
4. Update employment contracts to reflect new provisions (fixed-term gratuity, working hours, leave)
5. Track state-level enforcement and apply changes as each state notifies its rules

Red flag: If your EOR hasn’t mentioned the new labour codes to you, they may not be tracking regulatory changes closely enough.

Key Takeaways

• India is replacing 29 labour laws with 4 comprehensive codes — the biggest overhaul in decades
• The 50% wages requirement will force salary restructuring and increase PF/gratuity costs
• Fixed-term employees get pro-rata gratuity regardless of contract duration
• Gig worker protections are introduced for the first time
• Full enforcement is phased by state — prepare now, implement as states notify
• Work with your EOR to model cost impacts and develop a transition plan
• The direction is clear: more standardization, broader coverage, and higher compliance thresholds