🇮🇳 New Labour Codes 2025
Complete Professional Guide
Effective: November 21, 2025
India's Most Comprehensive Labour Reform
29 Central Labour Laws consolidated into 4 Modern Codes
Transforming the landscape of employment, social security, and workplace regulations
4
Labour Codes
29
Laws Replaced
64%
Social Security Coverage
📜 The Four Labour Codes - Overview
1. Code on Wages (2019)
Laws Consolidated: 4
- Payment of Wages Act, 1936
- Minimum Wages Act, 1948
- Payment of Bonus Act, 1965
- Equal Remuneration Act, 1976
Key Focus: Universal minimum wage, salary structure standardization, timely payment
2. Industrial Relations Code (2020)
Laws Consolidated: 3
- Trade Unions Act, 1926
- Industrial Employment Act, 1946
- Industrial Disputes Act, 1947
Key Focus: Employment terms, dispute resolution, gratuity, retrenchment procedures
3. Social Security Code (2020)
Laws Consolidated: 9
- Employees' Compensation Act, 1923
- ESI Act, 1948
- EPF Act, 1952
- Maternity Benefit Act, 1961
- Plus 5 more welfare acts
Key Focus: Universal social security, gig workers, platform workers
4. OSH & Working Conditions (2020)
Laws Consolidated: 13
- Factories Act, 1948
- Mines Act, 1952
- Contract Labour Act, 1970
- Inter-State Migrant Workers Act
- Plus 9 more safety acts
Key Focus: Workplace safety, health standards, working hours, women's rights
Historical Context: These codes represent decades of legislative evolution, simplifying compliance while strengthening worker protections. The consolidation aims to reduce regulatory complexity, improve ease of doing business, and extend social security to previously unorganized sectors.
💰 Code on Wages - Detailed Analysis
Revolutionary Wage Structure Reform
The most significant change affecting take-home salary and retirement benefits
1. New Definition of "Wages"
Components Included in Wages
- Basic Salary: Core component, must be clearly defined
- Dearness Allowance (DA): Cost of living adjustment
- Retaining Allowance: Special retention payments
Critical Rule: Basic + DA + Retaining Allowance must constitute at least 50% of total CTC (Cost to Company)
Excluded from Wages
- House Rent Allowance (HRA)
- Overtime allowance
- Conveyance allowance
- Travel allowance
- Special expenses reimbursement
- Employer's PF contribution
- Gratuity payment
- Retrenchment compensation
- Production bonus (with conditions)
The 50% Rule Impact
Maximum Allowances: Cannot exceed 50% of total compensation
- If allowances > 50%, excess added to wages
- Increases PF calculation base
- Raises gratuity calculation base
- Affects overtime pay computation
- Impacts bonus calculations
- Changes leave encashment
PRACTICAL EXAMPLE: Employee with CTC ₹100,000/month
Old Structure: Basic ₹40,000 (40%) + Allowances ₹60,000 (60%)
New Mandatory Structure: Basic ₹50,000 (50%) + Allowances ₹50,000 (50%)
Impact: PF contribution increases from ₹4,800 to ₹6,000 per month (₹14,400 more annually)
Old Structure: Basic ₹40,000 (40%) + Allowances ₹60,000 (60%)
New Mandatory Structure: Basic ₹50,000 (50%) + Allowances ₹50,000 (50%)
Impact: PF contribution increases from ₹4,800 to ₹6,000 per month (₹14,400 more annually)
2. Universal Minimum Wage
National Floor Wage
- Central government sets floor wage
- Applies to **ALL** categories of workers
- No worker can be paid below this
- Includes formal and informal sectors
- Covers gig and platform workers
State-Level Implementation
- States can set higher minimum wages
- Cannot go below national floor
- Based on regional cost of living
- Industry-specific adjustments allowed
- Regular reviews mandated
3. Salary Payment Regulations
Mandatory Payment Timeline:
IMPORTANT POINT: Salaries must be paid by the 7th of every month.
- For employees: Payment before 7th of following month
- For daily/weekly workers: Payment before expiry of 2nd day from last working day
- Mode of payment: Bank transfer or direct credit (cash discouraged)
- Wage slip mandatory: Must detail all components and deductions
- Penalties for delay: Compensation to workers plus penalties on employer
📊 Impact Analysis: Salary Structure Changes
Before vs After Comparison
| Component | Old Structure (Example) | New Structure (Mandatory) |
|---|---|---|
| Total CTC | ₹100,000 | ₹100,000 |
| Basic Salary | ₹40,000 (40%) | ₹50,000 (50%) |
| HRA | ₹20,000 | ₹15,000 |
| Special Allowances | ₹30,000 | ₹25,000 |
| Conveyance | ₹5,000 | ₹5,000 |
| Other Allowances | ₹5,000 | ₹5,000 |
| Employee PF (12%) | ₹4,800 | ₹6,000 |
| Employer PF (12%) | ₹4,800 | ₹6,000 |
| Take-Home Salary | ₹95,200 | ₹94,000 |
For Employees - Long-Term Benefits ⬆
- Higher PF Accumulation: ₹14,400 more per year going to retirement corpus
- Increased Gratuity: Calculated on higher base (₹50K vs ₹40K)
- Better Overtime Pay: Computed on higher wages
- Enhanced Leave Encashment: More valuable at end of service
- Stronger Social Security: Higher ESI benefits where applicable
- Improved Bonus: Bonus calculations based on higher wages
For Employers - Cost Implications ⬆
- Increased PF Contribution: 12% on higher base (₹6,000 vs ₹4,800)
- Higher Gratuity Liability: Greater provisioning required
- Increased ESI Costs: Where applicable (3.25% employer share)
- Restructuring Costs: HR systems, payroll updates
- Compliance Investment: Training, policy updates
- Statutory Audit Changes: Updated financial reporting
Net Impact for Employee: Immediate take-home reduces by approximately ₹1,200/month (1.2%), but retirement savings increase by ₹14,400/year (14.4% more in PF). Over a 30-year career, this translates to significantly higher retirement corpus — potentially lakhs more at retirement.
Employer Strategy: Many organizations are offsetting increased statutory costs by:
- Salary restructuring within existing CTC budgets
- Performance-linked variable pay adjustments
- Gradual implementation with salary revision cycles
- Enhanced employee value proposition highlighting long-term benefits
🤝 Industrial Relations Code - Comprehensive Details
Transforming Employment Relationships
Equal rights for fixed-term workers, simplified compliance, enhanced worker protection
1. Revolutionary Gratuity Changes
Fixed-Term Workers Revolution
- Eligibility: Just 1 year of continuous service (down from 5 years)
- Equal Treatment: Same as permanent employees
- Pro-rata Calculation: For service less than 5 years
- No Discrimination: Cannot be paid less than permanent staff
- Coverage: All fixed-term contract employees included
Gratuity Calculation
Formula: (Last drawn wages × 15 days × Years of service) ÷ 26
- Based on last drawn wages (new 50% rule applies)
- 15 days for each year of service
- Pro-rata for incomplete years
- Maximum cap: ₹20 lakhs (subject to revision)
- Tax-free up to ₹20 lakhs
EXAMPLE: Fixed-term employee, 2 years service, last wages ₹50,000/month
Gratuity = (50,000 × 15 × 2) ÷ 26 = ₹57,692
Previously: Not eligible (needed 5 years) = ₹0
Gratuity = (50,000 × 15 × 2) ÷ 26 = ₹57,692
Previously: Not eligible (needed 5 years) = ₹0
2. Mandatory Documentation & Transparency
Appointment Letter Requirements
Mandatory for ALL Workers - No Exceptions
Must Include:
- Employee name and designation
- Nature of employment (permanent/fixed-term/contract)
- Date of joining and duration
- Job description and responsibilities
- Work location and reporting structure
Wage Details Required:
- Basic salary component (minimum 50%)
- All allowances broken down
- Statutory deductions (PF, ESI)
- Payment frequency and date
- Overtime calculation method
- Social Security Entitlements: PF, ESI, gratuity eligibility clearly stated
- Working Hours: Normal hours, break times, weekly offs
- Leave Policy: Casual leave, sick leave, earned leave, maternity/paternity leave
- Termination Clause: Notice period, severance terms, exit formalities
- Service Rules: Code of conduct, disciplinary procedures
3. Reskilling & Retrenchment Provisions
Reskilling Fund Contribution
- Amount: 15 days of last drawn wages per retrenched worker
- Purpose: Worker retraining and skill development
- Administration: Government-managed fund
- Mandatory: No exemptions for any employer
- Utilization: For vocational training, placement assistance
Retrenchment Compensation
- Rate: 15 days wages for every completed year
- Notice Period: Minimum 60 days or pay in lieu
- Gratuity: Payable even if service < 5 years (pro-rata)
- Leave Encashment: All earned leave to be paid
- Experience Certificate: Mandatory within 7 days
4. Threshold Changes - Ease of Business
| Provision | Old Threshold | New Threshold | Impact |
|---|---|---|---|
| Factories Act Applicability (with power) | 10 workers | 20 workers | Increases compliance threshold for MSMEs. |
| Factories Act Applicability (without power) | 20 workers | 40 workers | Reduces regulatory burden for smaller, non-automated units. |
| Layoff/Retrenchment/Closure (Govt. Approval) | 100 workers | 300 workers | Allows larger establishments to restructure without prior government consent, subject to other conditions. |
| Contract Labour (Abolition/Regulation) | 20 workers | 50 workers | Firms with fewer than 50 contract workers are exempt from the need for a central/state license. |
🛡️ Social Security Code - Universal Coverage
Extending the Safety Net
First time recognition and formal provisions for Gig & Platform Workers
1. Gig & Platform Workers Inclusion
Definition & Recognition
- Gig Worker: Works outside traditional employer-employee relationship (e.g., freelance, short-term project).
- Platform Worker: Accesses work or services from a digital platform (e.g., ride-share drivers, delivery agents).
- Unorganised Worker: Home-based, self-employed, or worker in an unorganised sector.
- Aadhaar Mandatory: Required for registration and unique identity.
Social Security Fund
- Central Government to establish a dedicated fund.
- Funding from Central & State Govts. and mandatory contributions.
- **Mandatory Contribution from Aggregators:** 1-2% of their annual turnover (excluding GST).
- Maximum aggregator contribution capped at 5% of the total payout to Gig/Platform workers.
2. Key Enhancements to Existing Schemes
Employees' State Insurance (ESI)
- Applicable threshold reduced to establishments with **10 or more** employees (previously 20 for some states).
- Applicable to all establishments in all districts (previously only notified areas).
- Can be extended to workers in hazardous activities even with a single employee.
Employees' Provident Fund (EPF)
- **Universal applicability** regardless of wage ceiling (though contributions are capped by ceiling).
- Applicable to establishments with **20 or more** employees.
- PF calculation base mandatorily increases due to the 50% "Wages" rule.
Maternity Benefits: The Code reiterates the entitlement of 26 weeks of paid leave for female employees. It also mandates crèche facilities in establishments employing 50 or more employees (previously 30 or 50 depending on the Act).
👷 OSH & Working Conditions - Safety and Health
Consolidated Safety Standards
Focus on mandatory safety, women's empowerment, and migrant worker protection
1. Working Hours & Leave Entitlements
Annual Leave Provisions
- **Eligibility reduced:** Earned leave available after 180 days of service (down from 240 days).
- **Accrual Rate:** 1 day for every 20 days of work.
- **Carry Forward:** Can carry forward up to 30 days of leave.
- **Leave Encashment:** Mandatory for all accrued leave upon separation/termination.
Daily & Weekly Hours
- **Maximum Daily Limit:** 8 hours of work (excluding rest).
- **Spread-over:** Maximum of 12 hours (work + rest interval).
- **Weekly Limit:** 48 hours.
- **Overtime:** Paid at **twice** the regular wage (mandatory provision).
2. Women Empowerment & Safety
Key Provisions for Female Employees
- Night Shift: Women can work night shifts (7 PM to 6 AM) **with their consent**.
- Mandatory Safety: Employer must ensure adequate safety, security, and transport for night shift workers.
- Crèche Facilities: Mandatory for establishments with **50 or more** employees (applies to all sectors).
- Equal Pay: Reinforced provision of equal pay for equal work, regardless of gender.
- Maternity Leave: Reiteration of 26 weeks of paid maternity leave.
3. Inter-State Migrant Workers
Protections and Benefits
- **Definition Expanded:** Covers any worker employed on a hiring basis and traveling over State lines.
- **Database:** Mandatory maintenance of a national database for all migrant workers.
- **Travel Allowance:** Must be provided upon joining and returning home for workers hired from other states.
- **Social Security:** Entitled to all social security benefits (ESI, PF, Gratuity, etc.) regardless of their state of origin.
Simplified Compliance: The codes replace a web of old laws with single registration and licensing, single compliance return, and single electronic record-keeping. This drastically reduces the compliance burden, especially for MSMEs.