India’s New Labour Codes: What Every Employer Must Know

The government has completely revised the labour laws in India. And the deadline for you to comply with this latest update is April 1, 2026. If you are someone who runs a business, manages HR, or handles payroll in India, this affects you directly.

So let’s take a look at the changes in detail.

Why This Is a Big Deal

For decades, Indian businesses had to deal with 29 different labour laws, each with its own rules, definitions, and penalties. To an extent, it was confusing and outdated. Hence, the government decided to revise it.

Now they have replaced all 29 laws with 4 new Labour Codes, which came into force on November 21, 2025.

Here are the 4 new Labour Codes:

1. Code on Wages
2. Code on Social Security
3. Code on Occupational Safety, Health and Working Conditions
4. Code on Industrial Relations

Now these 4 codes together have brought a lot of changes, including how businesses pay employees, hire contract workers, manage safety, and handle exits. With this complete change as a company, you might see a rise of 5% to 15% costs.

Code 1: The New Wage Rules

This is the one change that affects almost all employers across the country. And it starts with the basic that is how you structure your employees’ pay. So let us start here.

As per the new Code that has been introduced, the basic wage must be at least 50% of an employee’s total compensation. With this, there comes a major shift. For many years, companies used to keep basic pay low and load up the CTC with allowances. And this was done to reduce PF liability, but with this new code, that approach no longer works.

Now, let’s take a look at what exactly gets counted as wages. Almost everything except:

• House Rent Allowance (HRA)
• Conveyance allowance
• Statutory bonus

And why does this matter? Because PF and gratuity are calculated on wages. Higher basic pay means higher contributions on both the employer and employee sides.

On PF specifically, all components of an employee’s salary up to ₹15,000 per month must be included in the PF calculation, unless they fall under the excluded categories above. So if your CTC structures are currently designed to minimise basic pay, now is the time to revisit them.

Code 2: Social Security

Now, when we come to the Code on Social Security, there is one major addition, that is, gig workers and platform workers are now inside the social security net.

Let’s have a detailed look at the new changes that have come with regard to social security.

1. Gig and platform workers are now covered.

If you run a business that uses app-based workers (like Zomato, Swiggy, etc) or freelancers through platforms. Then, in this case, they fall under India’s social security framework. And this is one of the major shift for companies in the gig economy.

2. Fixed-term employees now get full benefits.

As per the new rules, fixed-term employment (FTE) is now a formally recognised category under Indian law.

Here is what that means practically:

• Now fixed-term employees must receive the same pay and benefits as permanent employees in comparable roles in your company. They become eligible for gratuity after just one year, compared to five years for permanent staff.
• In case a female fixed-term employee goes on maternity leave, and her contract ends before the leave is completed, then in such a case, the employer may still be liable for the full 26 weeks of maternity benefit.

Code 3: Occupational Safety

The Occupational Safety, Health and Working Conditions Code brings in straightforward but important changes. Let’s have a look.

Registration

First and foremost, any business with 10 or more workers must now register under a single unified system. Now the old system won’t work where separate registrations were done under multiple laws.

Appointment Letters Are Now Mandatory

Unlike how it worked previously, now every employee must receive a formal appointment letter. This is no longer optional, and the letter must include:

• Role and designation
• Wage details
• Working hours and leave entitlements
• Working conditions

Working Hours and Leave

As per the latest updates, the maximum working hours are capped at 8 hours per day. If an employee accumulates more than 180 days of leave, the employer must encash the excess; it cannot simply be carried forward indefinitely.

Protection for Interstate Migrant Workers

Employees earning less than ₹18,000 per month who have relocated from another state for work now have specific protections under this code. Principal employers are responsible for ensuring these workers receive their entitled benefits.

Code 4: Industrial Relations

Now, coming to the Industrial Relations Code, it consolidates three existing laws into one framework.

Retrenchment Threshold Has Changed

As per the previous law, companies with 100 or more employees needed government approval before carrying out retrenchments or closures. Now the threshold has been raised to 300 employees.

Fixed-Term Employment

Fixed-term contracts are now legally recognised under Indian labour law. And now this gives businesses the ability to hire for specific projects or demand cycles, but with clear statutory responsibilities attached.

Penalties Have Increased Significantly

Non-compliance is no longer just a minor administrative risk. Here is a detailed view of the risks that you have to face in case you don’t comply to the latest updates.

Contract Labour: What Is Allowed and What Is Not

As per the new codes, there are some restrictions that have been brought in place with regard to the use of contract labour for core business activities. However, you get 3 exemptions:

• Traditional practices – where contracting for that activity has been a long-standing industry norm
• Part-time roles – where the nature of the work does not justify a full-time position
• Temporary demand surges – where a short-term spike in workload requires additional workers

Who is responsible for contract employees’ statutory deductions?

Now the contractor holds primary responsibility for PF and ESI contributions. And after that, the principal employer carries secondary liability. In case the contractor defaults, the principal employer can be held accountable.

Your Compliance Checklist Before April 1, 2026

The law is already in effect, and here is a practical starting checklist that helps you be complied to the latest updates:

• Review all CTC structures and ensure that the basic wages are at least 50% of total compensation
• Recalculate PF contributions, include all eligible wage components up to ₹15,000
• Assess gratuity provisions, particularly for fixed-term employees completing one year
• Issue appointment letters to every employee with all mandated details
• Audit contractor arrangements, verify that deductions are being made, and that records are maintained
• Complete unified registration if your establishment has 10 or more workers
• Update leave and working hour policies in line with the new limits
• Identify interstate migrant workers and ensure they receive entitled protections

The Deadline at a Glance

Where Does Your Business Stand?

The new Labour Codes are not something that yet to be enforced. It is an active law that came into force on November 1, 2025. If your business is not in accordance with the latest update, then your business will face penalties.

For most businesses, this means changes to payroll, HR policies, contracts, and employment structures.

And here is some good news for you, that the new framework is cleaner and more consolidated than what it replaced. Now all 29 laws have been compiled into 4 simple core codes. Once your systems are aligned, ongoing compliance will be more straightforward.

But getting there requires proper action, and for this, the time is short. At MSA, we help businesses assess their current compliance position and implement the changes needed under the new Labour Codes. If you have not started your review yet, we recommend beginning immediately.

Get in touch with our team at MSA.

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