Understanding the New Labour Codes: Practical Insights for Employers

Unsure how the new wage definition will impact your salary structures and payroll cost planning?

The Government of India and the Labour Ministry have come to a consensus and launched new labour codes that combine 29 existing laws into 4 distinct labour law codes in November 2025. The basic need for this reform was to create uniformity within the labour law framework and remove redundancies such as overlaps, inconsistent wage definitions, exclusions, archaic & obsolete provisions, excessive criminalization for minor lapses, etc. Still wondering what has changed in the new labour codes?

Nothing to worry, let’s get a clear picture of how the new labour law codes will affect both employers and employees in the current employment scenarios. Get, set, go!

How Did India Consolidate Multiple Labour Laws into the 4 Labour Codes?

In a historic move, the Indian Government has refined 29 existing labour laws into a more streamlined 4-code of labour laws, effective from 21st November 2025. The 4 new labour codes formulated by the expert labour law experts of the Ministry of Labour & Employment include the Code on Wages (Wage Code), 2019, the Industrial Relations Code (IR), 2020, the Code on Social Security (SS Code), 2020, & the Occupational Safety, Health & Working Conditions Code (OSHW), 2020.

This landmark reform gives a much-needed modern touch to labour regulations, strengthens worker welfare, and aligns India’s labour ecosystem with the evolving world of work, building a future-ready workforce and resilient industries that power labour reforms under Aatmanirbhar Bharat (Self-Reliant India).

Here are 5 reasons why new labour law codes in India came into existence:

1. Simplifying India’s Complex Labour Law Framework

To consolidate numerous complex labour laws into a simplified labour law code under a unified framework, resulting in improved clarity, enhanced compliance efficiency, & increased ease of doing business.

2. Modernising Labour Regulations for a Changing World of Work

To modernise India’s labour regulations & synchronize them with evolving work models, workforce mobility, & growing gig economy.

3. Expanding Social Security Coverage Across the Workforce

To enhance social security coverage for organised, unorganised, contract, & gig workers across sectors throughout India.

4. Reducing Compliance Burden Through Digitisation and Transparency

To reduce regulatory overload on employers via digitised compliance, transparent inspections, & streamlined enforcement mechanisms.

5. Balancing Worker Welfare with Economic Growth and Formal Employment

To create balanced labour law code reforms supporting worker welfare while promoting industrial growth, formal employment, & long-term economic sustainability.

Here is how 29 labour laws are merged into 4 new labour codes:

4 New Labour Law Code	Number of Old Labour Laws Consolidated	Key Old Laws Merged
Code on Wages, 2019	4 Laws	Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act, & Equal Remuneration Act
Industrial Relations Code, 2020	3 Laws	Trade Unions Act, Industrial Employment (Standing Orders) Act, & Industrial Disputes Act
Code on Social Security, 2020	9 Laws	EPF Act, ESI Act, Maternity Benefit Act, Gratuity Act, Employees’ Compensation Act, etc.
Occupational Safety, Health and Working Conditions Code, 2020	13 Laws	Factories Act, Contract Labour Act, Shops & Establishments Acts, Mines Act, Inter-State Migrant Workmen Act, & others
Total	29 Labour Laws	Consolidated into a simplified, uniform labour law framework

What is the Significance of the 4 New Labour Codes?

Here are the key rules and provisions applicable under the 4 new labour law codes 2025:

New Labour Law Code	Key Applicable Rules / Provisions
Code on Wages, 2019	·         Universal minimum wage & national floor wage standardisation. ·         Uniform definition of “wages” (broadens coverage for social security & gratuity). ·         Timely payment of wages to all employees. ·         Bonus payment eligibility & equal remuneration provisions. ·          Equal Remuneration Act, Subsume Payment of Wages Act, Minimum Wages Act, & Payment of Bonus Act.
Industrial Relations Code, 2020	·         Consolidates laws about trade unions, industrial disputes, & employment conditions. ·         Higher threshold for mandatory government approval for layoffs/retrenchment (now increased to 300 workers). ·         New rules on strikes (e.g., mass casual leave definition) & union recognition. ·         Optimised dispute resolution mechanisms.
Code on Social Security, 2020	·         Unified framework for social security benefits, including ESI, EPF, maternity, life insurance, etc. ·         Coverage extended to gig, platform, contract, & unorganised sector workers. ·         Single, streamlined registration for social security schemes. ·         Fixed-term workers’ benefits equalised with permanent workers & gratuity eligibility after one year of service.
Occupational Safety, Health and Working Conditions (OSHWC) Code, 2020	·         Consolidates workplace safety, health, & welfare provisions for all establishments. ·         Standardises working hours (e.g., 8–12 hours/day cap & 48 hours/week) & overtime pay. ·         Mandatory risk-based safety systems, hazard protections, & appointment letters. ·         Applies to factories, mines, plantations, transport, services, etc.

What are the Latest Amendments Made in the New Labour Codes?

Here are the 8 crucial amendments made in the new labour codes:

#	Amendment/Rule Change	Pre-Change	Post-Change (Under New Labour Codes 2025)
1	Definition of Wages	Multiple definitions across various laws; inconsistent for provident fund, gratuity, and bonus.	Standardised “wages” definition across codes, affecting PF, gratuity, bonus, and overtime calculations.
2	Minimum Wage	Minimum wage rules varied by state and employment sector; no national floor wage.	All workers are entitled to minimum wages; the national floor wage ensures uniform baseline coverage.
3	Final Settlement Timeline	No uniform legal deadline for full and final settlement upon separation.	Employers must settle all dues within 2 working days of separation.
4	Gratuity Eligibility	Gratuity is payable after 5 years of continuous service for fixed/regular employees.	Fixed-term employees become eligible for gratuity after 1 year of service.
5	Penalties & Jail Provisions	Numerous labour laws contained 87 jail provisions for various offences.	Reduced to 22 major provisions; many offences are now compoundable with a penalty rather than imprisonment
6	Social Security for Gig Workers	Gig/platform workers are not explicitly covered under previous social security schemes.	First-time inclusion of gig and platform workers under social security frameworks.
7	Employment Contracts	Written contract letters are not universally mandated; informal hiring norms prevailed.	Formal written employment contracts are now required, improving transparency and enforceability.
8	Working Hours & Overtime	Varied definitions across industries; overtime provisions scattered.	Standardised working hours (8–12 hrs/day up to 48 hrs/week) with double pay for overtime.

What Do the New Labour Codes Mean for Employers in India?

1. Restructuring Salary and Payroll Cost Frameworks

Employers must redesign salary structures due to standardised wage definitions described under the new labour codes. This directly impacts PF, gratuity liabilities, bonuses, & long-term employee cost management strategies.

2. Transition to Digitised and Centralised Compliance Systems

Compliance shifts toward fully digitized processes, requiring employers to maintain real-time employee records, online filings, & unified registers under stricter regulatory scrutiny, thanks to new labour law codes in 2025.

3. Revising Workforce Policies and Employment Documentation

Workforce policies need revision as appointment letters, working hours, leave rules, and overtime provisions become clearly defined and uniformly enforceable under the 4 code of labour laws.

4. Stricter Enforcement and Enhanced Penalty Exposure

Due to the new labour law code, employers are facing stronger enforcement through simplified inspections, higher monetary penalties, & faster dispute resolution mechanisms for labour law non-compliance.

5. Strategic Changes in Hiring and Workforce Planning

Hiring strategies must be designed by keeping the core elements of the new labour law codes in India in mind. They must adapt to expanded social security coverage, fixed-term employment provisions, and formal recognition of gig and platform workers across industries.

What Benefits Do Employees Gain Under the New Labour Codes?

1. Greater Wage Protection and Transparent Salary Structures

Employees will now receive greater wage protection through a standardised wage definition prescribed under the new labour codes. This ensures fair salary structures, higher social security contributions, & more transparent earnings across all employment categories, nationwide.

Example: The new labour law codes 2025 mandate that an employee’s basic pay (plus DA and retaining allowances) must constitute at least 50% of their total remuneration (CTC).

2. Faster Full and Final Settlement for Seamless Transitions

The 2-day full and final settlement rule, as per the new labour law code, ensures all dues are cleared quickly after separation, improving financial stability during job changes, layoffs, resignations, or end-of-contract scenarios.

Example: Surveys from late 2025 indicate that nearly 42% of Indian white-collar employees use their F&F settlement to fund their relocation or “notice period gap” expenses. The new labour codes will now help employees manage their financial well-being after a job change or layoffs.

3. Gratuity and Social Security Access for Fixed-Term Employees

Fixed-term staff gain parity with permanent employees, including gratuity eligibility post 1 year of service, social security access, & equal benefits for tenure served. This improved job stability and fairness, making the new labour law code extremely beneficial for contract employees.

Example: Permanent employees still require 5 years of continuous service to qualify for gratuity. However, fixed-term employees are now eligible after just 1 year (240 days of work).

4. Expanded Social Security Coverage for All Worker Categories

Gig workers, platform workers, contract staff, and unorganised sector employees are included under social security benefits under the new labour law codes in India. This enables improved access to EPF, ESI, insurance, maternity, & pension schemes.

Example: As of late 2025, 94.3 crore people come under the purview of at least 1 social protection benefit, a substantial rise from just 19%, recorded in 2015.

5. Improved Working Conditions, Safety, & Work-Life Balance

Clear working hour limits, OT rules, workplace safety standards, & mandatory appointment letters prescribed under new labour codes help prevent exploitation, bring work-life balance to the forefront, & strengthen employee rights & welfare.

Example: Employees are now eligible for paid yearly leave after just 180 days of work, compared to the previous requirement of 240 days.

How Can Employers Manage Digital Compliance and Employee Records Under the New Labour Codes?

Here are 5 ways employers can manage digital compliance & employer records that will satisfy the regulatory requirements prescribed under the new labour codes.

1. Adopt Centralised HRMS and Payroll Platforms

Employers must steer their new labour code-driven compliance management efforts in building centralized HRMS or payroll platforms. This helps HR teams to maintain employee data, attendance, leaves, salary structures, contracts, & statutory documents in real time for audit-ready compliance.

2. Digitise Onboarding and Employment Documentation

Companies must digitise onboarding processes with e-contracts, digital ID verification, & automated document storage to ensure every employee record meets new labour law code documentation requirements.

3. Integrate Attendance and Workforce Monitoring Systems

Firms must utilise integrated attendance, biometric, & access control systems for accurate working hours, overtime tracking, and leave management to support wage and compliance accuracy as per the 4 Code of Labour Laws.

4. Maintain Unified Digital Registers and Statutory Records

Businesses must maintain unified digital registers for PF, ESI, gratuity, & statutory filings to align with new labour code mandates. This gets rid of fragmented record-keeping & reduces errors during inspections or compliance reviews.

5. Automate Compliance Reporting and Filing Deadlines

Companies must automate statutory reporting, reminders, filing schedules, & audit trails through compliance dashboards. This minimizes manual work, prevents oversight, and demonstrates transparency during enforcement checks.

How Can Payroll Be Automated to Comply with the New Labour Law Codes?

Here are 5 critical steps necessary to automate payroll to comply with the new labour codes:

1. Reconfigure Payroll Structures as per Standardised Wage Definition

Update salary components so basic wages meet mandated thresholds prescribed by the new labour law codes 2025. This step paves the way for accurate PF, gratuity, overtime, & statutory benefits calculations.

2. Integrate HRMS, Attendance, and Payroll for Real-Time Data Flow

Link attendance, shift scheduling, overtime logs, & employee records to payroll for automatic, error-free wage processing & compliance accuracy that is on par with the 4 Code of Labour Laws.

3. Automate Statutory Deductions and Contributions

Configure payroll management system to auto-calculate PF, ESI, gratuity, bonus, & TDS based on updated legal slabs and definitions highlighted in the latest labour law codes.

4. Enable Digital Payslips, E-Registers, and Compliant Record Storage

Generate digital payslips (even for contract & temporary staff), maintain unified registers, & auto-store compliance documents for audit trails, inspections, & regulatory submissions.

5. Schedule Automated Filings and Compliance Deadlines

Use software reminders, dashboards, & e-filing to automate monthly, quarterly, and annual statutory submissions, reducing delays and penalty risks which can tarnish brand image.

What Are the Penalties, Legal Risks, and Enforcement Measures Under the 4 Codes of Labour Laws?

Violation / Non-Compliance	Possible Penalties	Legal Risks for Employers	Enforcement Measures
Failure to pay wages, dues, or settlements on time	Monetary fines, interest on outstanding payments	Civil liability, employee claims, litigation	Inspections, payment orders, and enforced recovery direction
Incorrect wage structure or miscalculation due to a non-standardised wage definition	Backdated recalculations, penalties on arrears	Payroll disputes, PF/ESI scrutiny, compliance audit failures	Payroll audits, digital scrutiny under the wage code
Not issuing mandatory appointment letters or contracts	Employer-specific fines per employee affected	Increased dispute risk; lack of legal protection in termination cases	Mandatory document verification during inspections
Non-maintenance of digital records, registers, or return filings	Recurring fines; higher penalties for repeat offences	Evidence gaps in disputes; difficulty proving compliance	Digital inspection, e-verification, compliance notice
Violation of working hours, overtime rules, or holiday wages	Double wage liability, overtime compensation orders	Employee disputes, labour court claims	Surprise inspections; enforcement of wage compensation orders
Safety and workplace health violations under the OSHWC Code	Heavy fines; criminal liability for severe negligence	Legal action for accidents or hazardous exposure incidents	Safety audits, suspension of operations, compliance directives
Non-payment of statutory contributions (PF, ESI, gratuity)	Fines, interest, and prosecution for repeated violations	PF/ESI attachment orders; asset liability	Direct enforcement through statutory bodies; recovery proceedings
Unfair labour practices or illegal termination/retrenchment	High compensation payouts; penalties for procedural lapses	Legal disputes; reinstatement orders from tribunals	Conciliation, labour court proceedings, government intervention
Non-cooperation with labour inspectors or failing to produce records	Penalties; facility-level restrictions for repeat cases	Escalated scrutiny; red-flag status in government systems	E-inspection, digital summons, higher-frequency audits
Discrimination or wage inequality	Equal remuneration violation fines	Reputational damage; public legal challenge	Mandatory correction orders; periodic wage audits

How Can Employers Prepare for the Full Implementation of the New Labour Codes?

Here are 6 best practices that can help employers in the full implementation of new labour codes across the organisation.

1. Conduct Comprehensive HR & Compliance Audits

Conduct internal HR, payroll, and compliance audits to identify gaps, update processes, and eliminate outdated labour policy practices that do not comply with the new labour codes before implementation takes centre stage.

2. Redesign Salary Structures for Wage Code Alignment

Redesign compensation structures (CTCs) to align with standardised wage definitions, ensuring PF, gratuity, bonus, & statutory contributions are correctly recalculated according to the new rules of the 4 Code of Labour Laws.

3. Digitise Workforce Data and Statutory Registers

Digitise employee records, appointment letters, attendance, & statutory registers utilising HRMS systems for seamless compliance, transparency, & inspection readiness across departments.

4. Update HR Policies, Contracts, and Documentation

Update HR policies, employment contracts, onboarding formats, & employee handbooks to reflect new labour law code requirements, documentation standards, & procedural changes.

5. Train Teams on New Compliance Obligations

Train HR, payroll, & management teams on compliance obligations, digital reporting, dispute resolution protocols, and documentation accuracy as per mandates prescribed under the new labour law code to avoid legal or financial risks.

6. Leverage Expert Advisory and Compliance Partnerships

Engage legal or compliance partners like Alp Consulting Ltd for expert guidance, state-specific advisory, implementation support, & continued monitoring of code notifications to ensure full readiness.

How Can Alp Consulting Support Employers in Implementing the New Labour Codes?

Alp Consulting Ltd, a leading labour law compliance agency in India, helps employers deploy the new labour codes throughout the organisation’s DNA with end-to-end compliance support, from policy audits & payroll restructuring to digital record migration & documentation alignment.

Our payroll & compliance experts assess current HR processes, redesign salary structures as per the new wage definition, & automate statutory filings via integrated HRMS solutions.

With state-specific advisory, ongoing compliance monitoring, & hands-on implementation assistance, Alp ensures a smooth transition, minimizes legal risks, and prepares businesses for sustained regulatory readiness and future workforce scalability.

Key Takeaways

• New labour codes simplify 29 laws into 4 unified regulations, delivering clarity, modernisation, & efficiency for employers across industries.
• Employers must restructure payroll, digitise compliance, & revise HR documentation to meet new wage definitions, working-hour norms, and statutory mandates.
• Employees benefit via improved wage transparency, faster settlements, expanded social security, better workplace safety, and fairer treatment across employment categories.
• Non-compliance now attracts stricter penalties, faster enforcement, higher financial exposure, and increased digital inspection visibility for organisations.
• Alp Consulting Ltd enables seamless implementation through policy audits, payroll restructuring, digital record alignment, HRMS integration, & ongoing state-wise compliance advisory.

FAQs

1. Will the new labour law codes apply uniformly across all Indian states?

Implementation of new labour codes requires state notifications, so adoption may vary. Moreover, core provisions apply nationally, but timelines and rules can differ by state.

2. How do the new labour codes impact fixed-term and contract workers?

Fixed-term workers gain gratuity after one year of service, parity with permanent staff, written contracts, social security coverage, & regulated working conditions as per the new labour law codes in India.

3. Do employers need to revise employment contracts for pre-existing staff?

Yes. Contracts must reflect new wage definitions, working hours, benefits, statutory clauses, termination processes, & mandatory appointment letter standards.

4. What are the implications for workforce planning under the new codes?

Employers must reassess hiring mixes, labour costs, gig engagement, contract durations, headcount strategy, compliance budgets, and payroll structure planning to align with new labour codes.

5. How will the gig and platform workers’ classification change for compliance?

Gig and platform workers receive social security recognition, requiring employer contributions, digital registration, benefit tracking, & transparent engagement contracts.

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