What the Four Labour Codes Changed for Employers and Workers

Which old laws did the four Labour Codes replace?

The four Codes absorbed 29 central labour laws that had grown up over seventy years. The Payment of Wages Act, the Minimum Wages Act, the Payment of Bonus Act and the Equal Remuneration Act became the Code on Wages, 2019. The Industrial Disputes Act, the Trade Unions Act and the Industrial Employment (Standing Orders) Act became the Industrial Relations Code, 2020. The Code on Social Security, 2020 took in the EPF Act, the ESI Act, the Payment of Gratuity Act, the Maternity Benefit Act and several welfare laws. The Occupational Safety, Health and Working Conditions Code, 2020 replaced the Factories Act, the Contract Labour Act, the Inter-State Migrant Workmen Act and a group of sector laws.

Much of the old substance survived. Minimum wages, bonus, gratuity, PF, ESI, maternity benefit, retrenchment compensation and the industrial dispute machinery are all still there, often with the same numbers. What changed is the vocabulary, some thresholds, a few definitions and the enforcement model. That is why the first question to ask about any HR policy or dispute is not whether it is now illegal, but which section of which Code now governs it and whether a number or a definition has moved.

State laws are a separate layer. The Delhi Shops and Establishments Act and the UP Dookan Aur Vanijya Adhishthan Adhiniyam still regulate shops and offices on matters like opening hours and registration, and state rules under the Codes fill in forms, authorities and procedures.

The four Codes at a glance

This table shows each Code, the main laws it replaced and the change that employers and workers notice first.

The thresholds in the third column are the ones most often misread. Check the headcount test in the exact provision before assuming a rule does or does not apply to your establishment.

When did the Labour Codes come into force, and are the rules final?

The Central Government brought all four Codes into force on 21 November 2025. The Central Rules under the four Codes, along with Model Standing Orders, were notified and took effect on 8 May 2026. The Central Rules apply to establishments for which the Central Government is the appropriate government, such as banks, railways, mines, ports, central public sector undertakings and some others.

Most private offices, shops and factories in Delhi, Noida and Ghaziabad fall under the state government for these purposes. For them the substantive provisions of the Codes apply, but forms, registers, authorities and some procedures depend on the Delhi or UP rules. Several states had not finalised their rules when the Central Rules came out, and the position keeps moving, so check the current notification for your state before you rely on a particular form or timeline.

Cases already pending under the old laws, such as an industrial dispute referred before November 2025, generally continue. The Codes contain savings and transition provisions, and in practice tribunals have carried on with matters on their files. Where an event happened before 21 November 2025 but the claim is filed later, the question of which law applies can matter, and it is worth getting it right in the first pleading.

How has the new definition of wages changed salary structures?

The single biggest change for payroll is the common definition of wages. Wages now include basic pay, dearness allowance and retaining allowance, and exclude items such as HRA, conveyance, overtime, bonus, commission, the employer's PF contribution and gratuity. The catch is the 50% rule: if the excluded items together exceed half of total remuneration, the excess is added back and treated as wages.

This matters because wages are the base for PF contributions, gratuity, bonus and several other benefits. Many Indian salary structures kept basic pay at 30 to 40% of CTC and loaded the rest into allowances. Under the Codes, that structure no longer reduces the base. An employer who keeps the old structure is calculating PF and gratuity on too low a figure, and the shortfall can come back as a claim with interest.

For employees, the effect is mixed. Retirement savings and gratuity go up, which is good in the long run. Monthly take-home can go down if the employer keeps CTC fixed and moves money into basic pay, because the employee's own PF contribution rises. Neither side should treat this as a matter of choice: the definition is statutory, and contracts that try to get around it are not enforceable to that extent.

What changed on minimum wages and the timing of salary payments?

Minimum wages now apply to every employee, not only to scheduled employments as under the old Act. The Central Government sets a national floor wage, and states cannot fix a minimum wage below it. Minimum wages are to be revised at regular intervals, normally not more than five years apart. In Delhi the state minimum wages for unskilled, semi-skilled, skilled and higher categories continue to be notified and revised.

The Code on Wages fixes when wages must be paid. Monthly wages must be paid before the seventh day of the following month, weekly wages on the last working day of the week and daily wages at the end of the shift. When an employee resigns, is dismissed or removed, is retrenched or loses the job because the establishment closes, the wages due must be paid within two working days. That last rule is the one employers most often miss, because many companies have a habit of settling dues in 45 or 60 days.

Deductions are still limited, and total deductions in a wage period generally cannot exceed 50% of the wages. Wage slips have to be issued, and the Central Rules require them in electronic form on or before the day wages are paid. The Code also forbids discrimination in wages and recruitment on the ground of gender, including transgender persons, for the same work or work of a similar nature.

Is an appointment letter now compulsory, and what about hours and leave?

Yes. The OSH Code requires every employer to issue an appointment letter to every employee, and the Central Rules prescribe what it should contain: details such as designation, type of employment, skill category and, with consent, Aadhaar details. For workers in informal setups, especially in small manufacturing units around Ghaziabad and Noida, this is a real change, because the appointment letter is often the first document that proves employment at all.

Normal working hours remain capped at 8 hours a day and 48 hours a week. Overtime must be paid at no less than twice the ordinary rate, with a quarterly cap set by the rules. The rules allow arrangements such as a four-day week with longer days, provided the weekly limit is respected and the state rules permit it. Spread-over, rest intervals and weekly holidays continue in much the same form.

Annual leave with wages now becomes available once a worker has put in 180 days of work in a calendar year, against 240 days under the old Factories Act, at the rate of one day for every 20 days worked. Leave can be carried forward within limits, and the Code allows encashment at the end of the year. Women can work in all establishments and, with their consent, at night, provided the employer meets the safety conditions the government lays down.

What does fixed-term employment mean for workers?

The Industrial Relations Code recognises fixed-term employment across all sectors: a worker engaged on a written contract for a fixed period. The Code requires that such a worker get the same hours, wages, allowances and other benefits as a permanent worker doing the same or similar work. They are also eligible for all statutory benefits in proportion to the period served.

The best known change is gratuity. A fixed-term employee no longer needs five years of continuous service; under the Code on Social Security and the Central Rules they become eligible after one year, on a pro rata basis. For a worker on a series of one-year contracts, this turns gratuity from something they never reached into something they earn every year.

Two cautions apply. First, the end of a fixed-term contract on its own terms is not retrenchment, so there is no retrenchment compensation when a contract simply runs out. Second, courts look at substance. A role that is plainly permanent, filled by the same person on back-to-back fixed-term contracts with artificial breaks, may be treated as permanent employment in disguise. Employers who use fixed-term contracts as a way to avoid permanence take that risk.

What changed for layoffs, retrenchment and closure?

The headline change is the threshold. Under the old Industrial Disputes Act, establishments with 100 or more workmen needed government permission to lay off, retrench or close. Under the Industrial Relations Code, that requirement applies to industrial establishments with 300 or more workers. The same 300 figure now applies to standing orders, and the Model Standing Orders notified on 8 May 2026 apply to manufacturing, mining and service establishments; an employer's adopted standing orders are deemed certified if the certifying officer raises no observation within 30 days.

Below 300 workers, retrenchment still has conditions. A worker with at least one year of continuous service must get one month's written notice or wages in lieu, retrenchment compensation of 15 days' average pay for every completed year of service, and notice must go to the government. On top of that, the employer must contribute 15 days' last drawn wages per retrenched worker to a Worker Re-skilling Fund, which is passed on to the worker.

The higher threshold does not make every termination safe. A retrenchment that ignores seniority without reason, skips the notice or the compensation, or is a disguised punishment can still be set aside by the Industrial Tribunal, with reinstatement and back wages. How to challenge one is explained in our post on wrongful termination remedies for employees.

Strikes, unions and grievance committees under the IR Code

The collective side of labour law changed more than most employers expected. The main points are these.

• Strike notice everywhere. Notice of a strike, given up to 60 days ahead and with at least 14 days to run before the strike starts, is now required in every industrial establishment, not only in public utility services. Strikes during conciliation or tribunal proceedings are prohibited.
• Negotiating union. A union with the support of 51% or more of the workers becomes the sole negotiating union. If no union reaches that figure, a negotiating council is formed from unions with at least 20% support.
• Grievance Redressal Committee. Establishments with 20 or more workers must have one, with equal representation of employer and workers and women represented in proportion. A worker can raise a grievance within one year of the cause of action.
• Mass casual leave. Concerted casual leave by half or more of the workers on a given day is treated as a strike, which surprises many unions.
• Industrial Tribunals. The Code replaces the separate labour courts with Industrial Tribunals made up of a judicial member and an administrative member. Until the new tribunals are fully in place in your district, check which forum is accepting filings.

Who gets social security now: gig workers, platform workers and ESIC

For the first time, gig workers and platform workers have a statutory place. The Code on Social Security lets the government frame schemes for them on life and disability cover, health, maternity and old age protection. Aggregators such as delivery and ride-hailing platforms contribute 1 to 2% of their annual turnover, capped at 5% of what they pay to these workers. Under the Central Rules, aggregators had to upload worker details on the central portal within 45 days of the rules starting.

ESIC coverage has been widened across the country, and establishments below the usual threshold can opt in. EPF continues to apply to establishments with 20 or more employees, with voluntary coverage for smaller ones. Maternity benefit remains 26 weeks for the first two children, with the existing provisions for adoptive and commissioning mothers.

The practical effect for most employers is in the base, not the rate. PF, ESIC and gratuity are now calculated on wages as defined with the 50% rule, so a company that has not restructured is building up a liability month by month. For PF disputes with the EPFO, including employer default, see our post on PF disputes and employer default.

How are the Codes enforced: inspector-cum-facilitator, penalties and compounding

The old inspector has become an inspector-cum-facilitator, whose job includes advising employers on compliance as well as inspecting them. Inspections are increasingly random and web-based, chosen by a computerised scheme rather than at the inspector's discretion, and registers can be kept electronically. Before prosecution for many first-time lapses, the inspector is expected to give the employer an opportunity to comply.

Penalties lean towards fines. Many first offences that once carried imprisonment are now punishable with fine only, and a number of offences can be compounded by paying a fixed proportion of the maximum fine. Repeat offences within a set period are punished more heavily. This is not a licence to ignore the Codes: wage claims carry their own compensation, and back PF and gratuity come with interest.

Wage claims are heard by an authority the government appoints under the Code on Wages, usually an officer of the labour department. The employee, a registered trade union of which the employee is a member, or the inspector-cum-facilitator can file. The authority can award compensation of up to ten times the amount claimed, in addition to the claim itself, and the limitation period is three years.

Do the Labour Codes apply to managers and senior staff?

Partly, and this is where many people go wrong in both directions. The wage payment provisions of the Code on Wages, including the dates of payment and the two-working-day rule for final dues, apply to employees generally, without the old salary ceiling of the Payment of Wages Act. A senior manager whose final salary is held back can therefore rely on the Code, not only on the contract.

The industrial dispute protections are narrower. The IR Code protects a "worker", which excludes people employed mainly in a managerial or administrative capacity and people in a supervisory capacity drawing wages above ₹18,000 a month or any higher figure the Central Government notifies. A team lead with real supervisory powers and a salary well above that is usually outside the worker definition, so a dispute about dismissal goes to a civil court on the contract, not to the Industrial Tribunal.

Designation does not decide the question. A "manager" who in fact does routine technical or clerical work with no power to hire, discipline or sanction leave may still be a worker. Tribunals look at the main duties actually performed, on the evidence.

What employers should do this quarter

When Advocate B.K. Singh reviews an employer's position under the Codes, he starts with the payroll register rather than the policy manual, because the payroll shows whether the policy is real. A workable sequence looks like this.

1. Identify your appropriate government

   Work out whether the Central or the state government is the appropriate government for each establishment. That decides whether the Central Rules or the Delhi or UP rules apply, and which authorities you deal with.

2. Test every salary structure against the 50% rule

   Take each grade and add up the excluded components. Where they exceed half of total pay, restructure, and recompute PF, ESIC and gratuity provisions on the correct base.

3. Fix the exit process

   Change the full and final settlement process so that wages due are paid within two working days of exit. Gratuity has its own 30-day timeline, and leave encashment and other dues should be planned so that nothing is held hostage to a no-dues form.

4. Issue appointment letters

   Issue letters in the prescribed format to every employee, including those who joined years ago without one. Keep a signed copy or an electronic acknowledgment.

5. Review fixed-term and contract arrangements

   List fixed-term employees, check pay parity with permanent staff, and provide for pro rata gratuity after one year. Check whether your contractors need a licence under the 50-worker threshold.

6. Update standing orders and grievance machinery

   If you have 300 or more workers, adopt standing orders in line with the Model Standing Orders. If you have 20 or more, set up the Grievance Redressal Committee and record its meetings.

Our corporate law consultancy work includes this kind of review, and new contracts can be drafted through our commercial contracts and agreements service.

Checklist for workers: what to check in your own papers

Workers and employees can check most of this themselves in an evening.

• Do you have an appointment letter showing your designation, date of joining and type of employment?
• Is basic pay plus DA on your salary slip at least half of your gross pay?
• Is your PF contribution calculated on that figure, and does the EPFO passbook match the slips?
• Is your salary credited before the seventh of every month?
• If you are on a fixed-term contract, are your pay and benefits the same as permanent staff doing the same job?
• Have you completed one year (fixed-term) or five years (permanent) for gratuity?
• Do you have copies of your last twelve salary slips, bank statements and any increment letters?
• If you have left, were your wages paid within two working days of your last day?

Common mistakes since the switch-over

The most common employer mistake is treating the Codes as a future event. They have been in force since November 2025, and a company still paying gratuity on a basic of 35% of CTC is accumulating a liability that employees can claim with interest. The second is holding final settlement for 45 days as a matter of policy. The two-working-day rule is statutory, and "our policy says 45 days" is not a defence before the claims authority.

The most common employee mistake is assuming that the Codes give them more than they do. A manager earning ₹2 lakh a month does not become a worker under the IR Code just because the Codes are new, and an employer with 120 workers does not need government permission to retrench. Another is waiting. The three-year limit for wage claims and the two-year limit for taking a termination dispute to the Industrial Tribunal (shorter than the three years under the old law) run regardless of whether you have found a lawyer.

A point Advocate B.K. Singh often makes to clients on both sides is that the Codes have made documentation more valuable, not less. Appointment letters, electronic wage slips and grievance committee minutes are now the first things a tribunal asks for. Whoever has kept them usually has the stronger case.

Where do labour disputes go now?

Unpaid wages, wrongful deductions, unpaid bonus and minimum wage shortfalls go to the claims authority under the Code on Wages, with an appeal within 90 days to an appellate authority. Unpaid gratuity goes first to the employer by written application and then to the competent authority under the Code on Social Security. Disputes over dismissal, discharge or retrenchment of a worker go through the Grievance Redressal Committee where there is one, then conciliation, then the Industrial Tribunal.

Managers outside the worker definition usually sue in the civil court on their contract, often for notice pay and dues, and sometimes for damages. Sexual harassment complaints go to the Internal Committee under the POSH Act, explained in our post on filing a POSH complaint before the Internal Committee. Disputes over notice periods, bonds and confidentiality clauses are mostly contract questions, covered in our post on employment agreement clauses.

Picking the right forum at the start saves months. A wage claim filed in a civil court when it could have gone to the claims authority may run into the bar on civil suits in the Code on Wages, and a manager who files before the Industrial Tribunal may be told, after a year, that he is not a worker at all.

What to do this week

If you run a business, pull out three things: one month's payroll register, your standard appointment letter and your exit process note. Measure them against the 50% rule, the appointment letter requirement and the two-working-day rule. If any of the three fails, fix it before an inspector or a departing employee points it out.

If you are an employee, collect your appointment letter, your salary slips for the last year and your EPFO passbook, and check them against the checklist above. If you have recently left a job and your dues are outstanding, note the date of your last working day, because several limitation periods start from it.

If you would like an advocate to read your papers and tell you which Code applies and what the deadline is, the team of Advocate B.K. Singh at B.K. Singh & Associates can review them; you can send the details through our online legal enquiry form.