Key Changes Under the New Labour Codes

Key Changes Under the New Labour Codes (Effective 21 November 2025)

The new Labour Codes introduce a significant overhaul of India’s employment and wage framework. India’s four consolidated Labour Codes took effect on November 21, 2025, replacing 29 older laws to streamline compliance and modernize workplace rules across wages, social security, industrial relations, and occupational safety.​

Objective of the Labour Codes :

India’s long-awaited labour reforms have finally come into effect. On 21 November 2025, the Government of India implemented all four consolidated Labour Codes, replacing 29 existing central labour laws. These reforms aim to streamline compliance, modernise workplace practices, and bring India’s labour framework closer to global standards.

The overall intent of the consolidation is to Simplify compliance by replacing 29 separate laws with 4 comprehensive Codes., Improve transparency in wage calculations and employment terms., Enhance employee welfare through expanded social security and workplace protections, Provide flexibility in work hours, hiring, and contract structures, Boost formalisation of the workforce, Align India’s labour laws with international best practices, enhancing competitiveness and ease of doing business.

Implementation of the Four Labour Codes

Implementation of the Four Labour Codes: Objective of Four Labour Codes (effective November 21, 2025) is to replace 29 older laws to simplify compliance, modernize workplace rules, and align India’s labour ecosystem with global standards. Four Labour Codes Implemented includes The following four major Codes have now been formally enforced:

• Code on Wages, 2019 : Consolidates and replaces laws related to Payment of Wages, Minimum Wages, Payment of Bonus, Equal Remuneration. Key focus to uniform definition of wages, timely payment, minimum wage protection, and transparency.
• Industrial Relations Code (IRC), 2020 : Replaces Industrial Disputes Act, Industrial Employment (Standing Orders) Act, Trade Unions Act. Key focus to reducing industrial disputes, promoting ease of doing business, faster dispute resolution, fixed-term employment, and streamlined standing orders.
• Code on Social Security, 2020 : Merges nine earlier laws including EPF Act, ESI Act, Maternity Benefit Act, Payment of Gratuity Act, Unorganised Workers’ Social Security Act. Key focus is to expanded social security coverage (including gig/platform workers), uniformity across PF/ESI/gratuity, and digitised compliance.
• Occupational Safety, Health and Working Conditions (OSH) Code, 2020 : Combines 13 prior laws including Factories Act, Contract Labour Act, Inter-State Migrant Workers Act, Mines Act, Plantations Labour Act. Key focus is to better workplace safety standards, common licensing, improved working conditions, mandatory health & safety norms.

Major Reforms & Benefits of New Labour Codes

Below is a structured and refined overview of the major changes and their implications:

Formalisation of Employment:

• Mandatory appointment letters for all workers.
• Social Security Coverage: All workers, including gig & platform workers, covered under PF, ESIC, insurance.
• Minimum Wages: Statutory right to minimum wage for all workers, not just scheduled industries.
• Preventive Healthcare: Free annual health check-up for workers above 40 years.
• Women Empowerment: Women allowed to work night shifts and in all types of work, with consent and safety measures.
• Compliance Simplification: Single registration, PAN-India license, and single return instead of multiple filings.

Key Employee-Centric Benefits

Fixed basic pay now requires at least 50% of total CTC, ensuring fair wage structures. Gratuity extends to fixed-term employees after one year, while earned leave accrues post-180 days.​

• Basic Pay Structure: At least 50% of the Total Cost to Company (CTC) must be classified as basic wages. This change impacts Provident Fund (PF), Gratuity, Leave encashment & Other wage-linked social security contributions. This structure Ensures fair and uniform wage distribution across industries.
• Gratuity Reform: Fixed-term employees become eligible for gratuity after 1 year of continuous service. & Previously limited only to employees completing 5 years of service (with exception for death/disablement cases).
• Earned Leave: Accrual of earned leave now begins after 180 days of employment. Leave norms are standardised across establishments for better compliance.

Work Hours & and Pay Rules & Regulations under new Labour Codes

A flexible 4-day workweek option exists, capped at 48 hours weekly, with overtime paid at double rates. Salaries must disburse by the 7th monthly, and full-and-final settlements complete in 2 working days

• Workweek Flexibility : The new Labour Codes Introduction of a flexible workweek: 4-day, 5-day, or 6-day workweek options, Total working hours capped at 48 hours per week (no change). If opting for fewer days (e.g., 4 days), daily hours may increase.
• Overtime Rules : Overtime wages must be paid at 2x the regular wage rate. & The new Labour Codes Enhanced cap on overtime hours applicable as per industry norms.
• Salary Disbursement Timelines : Monthly wages must be paid on or before the 7th of the following month. The new Labour Codes Ensures timely compensation and liquidity for employees.
• Full & Final Settlement : Full & Final (F&F) settlement must be completed within 2 working days after employee separation. The new Labour Codes ensure Faster clearance of dues significantly improves employee experience.

Specific Provisions under new Labour Codes

• Fixed-Term Employees: Equal benefits as permanent workers & Gratuity after 1 year (earlier 5 years).
• Gig & Platform Workers: Defined for the first time. Aggregators to contribute 1–2% of turnover for social security.
• Work Hours & Pay: 48-hour weekly cap, flexible workweek possible. Double wages for overtime, Salary release by 7th of every month. & Full & final settlement within 2 working days.
• Safety & Welfare: Mandatory safety committees for establishments with 500+ workers. & Free annual health check-ups for hazardous industry workers.

Impact on New Labour Codes Implications for Employers & Employees

Take-home pay drops slightly (3.15%), but tax savings increase due to higher EPF contribution.  Basic pay rises from 40% to 50% of CTC, reducing allowances. Employer & employee EPF contributions increase, boosting retirement savings. Gratuity amount increases due to higher basic pay.

For Employers

• Reduced compliance burden, single registration, flexibility in work arrangements.

• Need to restructure salary components to align with the 50% basic wage requirement.
• Higher employer cost due to increased PF and gratuity obligations.
• Update HR, payroll systems, and employment contracts to remain compliant.
• Review shift schedules if adopting a 4-day workweek model.

For Employees

• Better wages, social security, gender equality, health benefits.
• Higher social security benefits (PF, gratuity) → long-term financial security.
• Faster F&F settlements reduce transition stress during job changes.
• Flexible workweek options → potential improvement in work-life balance.
• Earned leave and social security benefits now more uniformly available.