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India has consolidated 29 central labour laws into 4 comprehensive Labour Codes that came into force on November 21, 2025. This guide explains the key implications for foreign businesses operating in India.
What has changed in India’s labour law framework?
India’s labour regulations were previously scattered across 29 separate statutes containing over 1,200 provisions, creating significant compliance complexity. The reform consolidates these into four codes:
Code on Wages – Payment requirements, minimum wages, bonuses, and equal pay
Social Security Code – Retirement benefits, health insurance, maternity benefits, and gratuity
Occupational Safety, Health and Working Conditions Code – Workplace safety, working hours, and employment conditions
Industrial Relations Code – Unions, layoffs, and dispute resolution
The transformation goes beyond simple consolidation. Businesses now complete one online registration instead of 6–10 different registrations, file one unified annual report rather than 15–20 separate reports, and use a streamlined identification system. This represents a fundamental shift from fragmented paper-based compliance to integrated digital administration.
When do these changes take effect?
All four Labour Codes commenced on November 21, 2025, though some provisions in the Code on Wages and Social Security Code remain subject to further notification. Businesses have a one-year transition period until November 20, 2026, to migrate existing registrations to the unified system. Early migration is recommended to ensure smooth compliance with the first unified annual filing.
INDIA’S NEW LABOUR CODES:
Business Impact Guide for International Companies
How has the wage definition changed?
The redefinition of “wages” has significant cost implications. Previously, employers could structure compensation to minimize the basic salary component by classifying payments as various allowances, thereby reducing mandatory contributions to retirement funds and other statutory benefits.
The new Code specifies that allowances exceeding 50% of total compensation cannot be excluded from wages. For businesses that maintained basic salaries at 30–40% of total compensation, this change will increase statutory contribution costs by 20–40%. Since retirement fund contributions are calculated at 12% of wages from both employer and employee, and gratuity calculations are similarly affected, the financial impact is substantial.
What are the payment timeline requirements?
Wages must be paid before the 7th day of the following month for establishments with fewer than 1,000 workers, and before the 10th day for larger establishments. This tightens timelines for many employers who previously had more flexibility. The Code explicitly permits and encourages digital payments through bank transfers or cheques.
What are the requirements for final settlement?
Employers must pay all due wages within two working days from the last day of employment, even when the employee resigns voluntarily. Previously, this strict timeline applied only to company-initiated terminations.
This creates operational pressure, as businesses typically took 30–45 days to process final settlements including unused leave calculations, asset recovery, and approvals. Companies need to implement immediate calculation systems, streamlined asset return procedures, and pre-approved authorization structures. Non-compliance can result in penalties, employee complaints, and potential criminal liability for responsible officers.
How does the Floor Wage concept work?
The Code establishes a national Floor Wage set by the Central Government, below which no state can set its minimum wage.
States can set minimum wages higher than the Floor Wage based on local conditions, but cannot go below the national baseline. This is similar to the federal minimum wage system in the United States. This provides greater certainty for businesses planning multi-state operations while ensuring a guaranteed minimum standard across India.
What are the equal pay requirements?
The Code strengthens equal pay provisions by extending the obligation to all genders for all forms of compensation including travel allowances, housing allowances, and payments under collective agreements or court orders. The Code prohibits discrimination based on gender for the same work or work of similar nature, and extends protection to transgender and non-binary employees.
Understanding India’s social security framework
For international businesses, it’s helpful to understand India’s social security system in comparison to familiar frameworks:
EPF (Employees’ Provident Fund) – Similar to the US 401(k), Singapore’s CPF, or UK’s workplace pension schemes. This is a mandatory retirement savings program with contributions from both employer and employee.
ESIC (Employees’ State Insurance Corporation) – This provides health insurance and medical benefits for lower-income workers.
Gratuity – Similar to severance pay or redundancy payments in many Western countries, but calculated based on years of service and paid upon retirement or resignation after qualifying periods.
How are gig and platform workers covered?
The Code provides statutory recognition to “gig workers” (persons performing activities outside traditional employer-employee relationships) and “platform workers” (those accessing organizations through online platforms for specific services).
Platform companies must register with the government, maintain records of platform workers, and contribute 1–2% of their annual turnover to a social security fund. Note this is a percentage of revenue, not profits. For a ride-sharing company with ₹1,000 crore annual turnover, this could mean ₹10–20 crore in annual contributions. Workers maintain flexibility in when and how much they work but gain access to government-administered social security schemes.
What are the rules for fixed-term employment?
Fixed-term employees must receive all statutory benefits proportionate to their period of service at parity with permanent employees doing the same work. The gratuity threshold has been reduced from 5 years to just 1 year for fixed-term employees.
How has health insurance coverage expanded?
ESIC coverage has expanded from 566 districts to all 740 districts in India. The wage ceiling has been raised to ₹21,000 per month. Establishments in smaller towns previously exempt must now register. Platform and gig workers are eligible. Any establishment with even one hazardous worker must provide ESIC.
The contribution rate remains 3.25% of wages (0.75% employee, 2.5% employer).
What changes affect retirement savings coverage?
EPF continues to be mandatory for establishments with 20 or more employees. Contributions remain at 12% of wages from both employer and employee.
The Code introduces provisions for extending coverage to informal and self-employed workers.
How do gratuity provisions work?
Employees are entitled to gratuity upon termination after five years of continuous service (except for death or disablement). The amount is 15 days’ wages for every completed year. The new wage definition increases the calculation base.
Fixed-term employees become entitled after just one year.
What establishment size thresholds apply?
The OSH Code introduces a uniform threshold of 10 or more workers for most provisions, replacing earlier thresholds ranging from 5 to 100.
How are inter-state migrant workers defined?
The definition now includes workers who migrate on their own. This includes IT workers transferred between cities, retail workers relocating, and construction workers, provided they earn less than ₹18,000/month.
What are the contract labour requirements?
The threshold increases from 20 to 50 workers. However, the definition has been broadened, creating stricter compliance. Workers classified as contractors’ “permanent employees” may now be deemed contract labour unless they meet strict criteria.
Contract workers must receive welfare facilities similar to regular employees.
Employers must provide displacement allowance, home travel allowance, accommodation, medical facilities, and protective equipment.
What are the leave requirements?
Earned leave: 1 day for every 20 days worked; accumulation allowed up to 30 days annually.
Maternity leave:
26 weeks for first two children
12 weeks for subsequent children
Childcare facilities required for establishments with 50+ employees. Work-from-home may be offered to new mothers.
What are the working hours and overtime rules?
Maximum 8 hours/day, 48 hours/week
Total hours including overtime cannot exceed 12 hours/day
Overtime at 2× wages
Weekly holiday mandatory
What are the layoff and closure requirements?
The threshold requiring government approval increases from 100 to 300 workers. Establishments with 100–299 workers may lay off or close with notice, without prior government approval.
Severance: 15 days’ average pay per year of service.
How has the inspection regime changed?
Inspections must use web-based, randomized, and transparent selection with advance notice (except emergencies). Inspections may be video-recorded. Businesses have appeal rights.
How do trade union rules work?
A “negotiating union” is recognized if it has 51% worker support. If not, unions with ≥20% support form a negotiating council.
Union registration requires 10% of workers or 100 workers, whichever is less.
What are the standing orders requirements?
Threshold increased from 100 to 300 workers. Below 300, standing orders are not mandatory, but HR policies are recommended.
What are the strike and lockout rules?
14 days’ notice required for strikes in public utilities
Strikes prohibited during conciliation and for 60 days thereafter
Notice requirements also apply to lockouts
Expanded definition of public utilities (includes IT-enabled services)
How does unified registration work?
One online registration covers all four Labour Codes, providing a single registration number. Workers receive a Universal Account Number (UAN) linked to Aadhaar.
What grievance mechanisms are required?
Establishments with 20+ employees must establish a Grievance Resolution Committee with equal employer–employee representation. Issues must be resolved within 30 days; escalated grievances must also be resolved within 30 days.
What is the unified reporting system?
The “One Return” system merges multiple reports into one unified annual return (due 1 February each year). Monthly contributions for EPF/ESIC continue.
What are the inspection protocols?
Randomized, web-based inspection system with digital logging and advance notice except for specific cases. Findings are digitally recorded. Appeals permitted.
What are the penalties for violations?
Wage Code violations: Up to ₹50,000 and/or 3 months’ imprisonment
Social Security Code violations: Up to ₹1,00,000 and/or imprisonment
OSH Code violations: Up to ₹2,00,000; accidents may lead to 2 years’ imprisonment
Industrial Relations Code violations: Up to ₹50,000
Some offences can be compounded if not repeated within 5 years.
What are the cost implications?
Costs will increase due to:
New wage definition (higher EPF/gratuity costs)
Expanded ESIC coverage (3.25% contribution)
Platform worker levy (1–2% of turnover)
Compliance costs will decrease due to consolidation and reduced inspector discretion.
How does operational flexibility change?
Fixed-term contracts gain legitimacy. Layoff threshold increase (100→300) improves scalability for mid-sized firms.
Which sectors face the most significant changes?
Manufacturing: Stronger safety rules; benefit from restructuring flexibility.
IT/ITES: Working hour clarity; interstate migrant worker rules may apply for junior staff.
Platform companies: Most affected due to turnover levy.
Construction: Stronger migrant worker obligations.
Hospitality/retail: Two-day final settlement requirement is challenging.
States cannot amend core national provisions but can modify procedures. Businesses should apply a central framework with state-specific procedural layering.
How should multi-state operations approach compliance?
Recommended:
Central compliance team
State-specific procedural officers
Compliance matrix tracking state variations
Wages must comply with both central Floor Wage and higher state rates.
How do the Codes apply to foreign companies?
Foreign companies operating in India are fully subject to the Codes. Liaison offices have limited exposure unless employing 10+ workers.
How are expatriate employees covered?
Expatriates are covered by working hour and safety rules, generally exempt from minimum wages. EPF exemptions apply if home-country coverage exists under bilateral agreements.
How are remote work arrangements regulated?
Work-from-home must comply with safety standards. Working hours and overtime rules apply identically. Final settlement rules also apply.
Do the Codes apply to Special Economic Zones?
Yes, unless specifically exempted. Procedural simplifications may apply.
How are existing rights and obligations handled?
All existing rights under old laws continue. Retirement balances, gratuity, leave, etc., remain intact.
How are pending legal proceedings handled?
Pending cases transfer to new authorities but continue seamlessly.
What is the migration timeline?
Existing registrations valid until 20 November 2026. Early migration advised.
India’s consolidation simplifies compliance and moves toward international best practices. Costs rise but predictability and transparency improve. India remains cost-competitive compared to OECD countries.
India’s new Labour Codes create a streamlined, flexible, and modern compliance environment. Long-term benefits outweigh transition costs. The reforms align India more closely with global employment standards while maintaining cost advantages.
This guide is current as of December 2025.
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