New Labour Codes Compliance

As of 2024, the four Labour Codes — the Code on Wages 2019, the Industrial Relations Code 2020, the Code on Social Security 2020, and the Occupational Safety, Health and Working Conditions Code 2020 — have received Presidential assent but have not been brought into full force simultaneously across all states. The central government has published draft rules, and many states have published their own concurrent rules, but a unified enforcement date has not been announced. Companies should begin preparation now because the internal restructuring of payroll, contracts, and systems typically takes three to six months, and doing so under time pressure after the enforcement date is announced carries significant compliance, employee relations, and financial risks.

The Code on Wages 2019 defines 'wages' to include basic pay, dearness allowance, and retaining allowance, and caps all exclusions (HRA, conveyance, special allowance, and other components) at 50% of total remuneration. If the excluded components in an employee's CTC collectively exceed 50% of total pay, the excess must be reclassified as wages. Since PF contributions under the Employees' Provident Funds and Miscellaneous Provisions Act are computed on 'basic wages' (a term that will be replaced by the new wage definition when the Code on Social Security 2020 comes into force), many employers who currently pay a low basic to minimise PF contributions will see a significant increase in their statutory PF liability and must revise their CTC structures accordingly.

The Industrial Relations Code 2020 introduces a statutory definition of fixed-term employment for the first time in central labour law. A fixed-term employee is one engaged for a specific duration under a written contract, with working hours, wages, and service conditions identical to those of a permanent employee doing similar work. A key innovation is that fixed-term employees are entitled to proportionate gratuity even if they have not completed five years of continuous service — gratuity is payable at the rate of 15 days' wages for each completed year of service, pro-rated for the fixed term served. Employers benefit because fixed-term contracts provide legitimate operational flexibility for project-based or seasonal work without the regulatory constraints that apply to retrenchment of permanent workers.

Yes. The Code on Social Security 2020 defines 'gig worker' as a person who performs work or participates in a work arrangement and earns from such activities outside of a traditional employer-employee relationship, typically through digital platforms. The Code defines 'platform aggregator' as a digital intermediary or a market place that connects workers with customers. The central government has the power to frame social security schemes for gig workers covering life and disability cover, accident insurance, health and maternity benefits, old-age protection, creche, and education schemes for workers' children. The cost of these schemes will be shared between the aggregator and the central or state government. The precise contribution rates and implementation mechanics will be defined in the relevant central or state rules when notified.

Under the Industrial Disputes Act 1947, establishments employing 100 or more workmen were required to obtain prior government permission before effecting any lay-off, retrenchment, or closure. The Industrial Relations Code 2020 raises this threshold to 300 workers. This means that establishments employing between 100 and 299 workers, which previously required government permission for retrenchment, will enjoy the same operational flexibility as smaller establishments once the Code is enforced. Establishments with 300 or more workers continue to require prior government approval. This change is significant for mid-sized Indian manufacturers and service companies that found the 100-worker threshold operationally restrictive.

Currently, employers must obtain separate registrations and licences under multiple statutes — the Shops and Establishments Act (state-specific), the Factories Act, the Contract Labour Act, the Employees' Provident Funds Act, and the Employees' State Insurance Act, among others. The four Labour Codes introduce a framework for a single unified registration that covers all establishments and eliminates the need for separate registrations under individual repealed statutes. The central government's Shram Suvidha Portal is being expanded to serve as the single interface for registration, returns, and inspections under the Codes. The exact implementation of unified registration is subject to state rules, which vary in their level of advancement.

The Code on Social Security 2020 retains the five-year continuous service requirement for gratuity eligibility for permanent employees, consistent with the Payment of Gratuity Act 1972 which it subsumes. The rate of gratuity (15 days' wages for each year of completed service) is also retained. The most significant change is the introduction of pro-rated gratuity for fixed-term employees, as discussed above. The Code also extends gratuity coverage to working journalists (currently governed by the Working Journalists and Other Newspaper Employees Act) and proposes a portable gratuity scheme that will allow workers to carry their gratuity entitlement across employers through a social security fund — though the operational details of portability are subject to separate scheme notification by the central government.

The Occupational Safety, Health and Working Conditions Code 2020 primarily applies to establishments covered by the repealed Factories Act 1948 (manufacturing with power and 10 or more workers, or without power and 20 or more workers), mines, docks, construction establishments, and specified other sectors. Pure IT and software offices that do not involve manufacturing or construction processes are generally not within the core applicability of the OHS Code in the same manner as factories. However, the Code mandates the issuance of appointment letters to every worker in covered establishments — a provision whose broader applicability across the service sector will be clarified when state rules are finalised. IT companies with large workforces often engage contractual workers through third parties, bringing them into the scope of the contract labour provisions consolidated in the OHS Code.

Labour is a concurrent subject under the Indian Constitution (Seventh Schedule, List III), meaning both the central government and state governments have the power to legislate on labour matters. The four Labour Codes are central Acts, but each state must frame its own rules to give effect to them within its jurisdiction, and states have discretion on certain matters such as threshold applicability and sector-specific provisions. Companies operating across multiple states must therefore monitor state-specific rule notifications independently and may face a mosaic of commencement dates and rule variations. A pan-India compliance exercise requires mapping each state's rule-making progress, prioritising states where enforcement is most advanced, and building a flexible compliance framework that can absorb state-specific variations as new rules are published.