India Labour Code Implementation Tracker: State-Wise Status & Compliance Guide

Why the Labour Code Implementation Timeline Matters for Foreign Employers

On 21 November 2025, the Government of India notified all four labour codes simultaneously: the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020, and the Occupational Safety, Health and Working Conditions (OSH) Code, 2020. These four codes replace 29 legacy labour laws that had governed Indian workplaces since the 1940s.

For foreign companies operating in India through a wholly owned subsidiary, branch office, or liaison office, this is the most significant employment law overhaul in decades. However, the implementation is not a single switch. Labour is a concurrent subject under the Indian Constitution, meaning both the Central Government and State Governments must notify their own rules before the codes become fully operational.

The Ministry of Labour and Employment introduced draft Central Rules through an official gazette notification dated 30 December 2025, with a comment period of 30-45 days depending on the code. Final Central Rules are expected by 1 April 2026. Meanwhile, states are moving at vastly different speeds, creating a patchwork compliance landscape that foreign employers must navigate carefully.

This tracker provides a comprehensive state-by-state view of implementation progress, explains the practical impact of each code on foreign company operations, and delivers a detailed compliance action plan. We update this information as new state notifications are published. If you operate in multiple Indian states, the differences in implementation timelines directly affect when and how you must restructure payroll, update employment contracts, and modify HR policies.

The Four Labour Codes: What Each One Changes

Code on Wages, 2019

This code consolidates the Payment of Wages Act 1936, the Minimum Wages Act 1948, the Payment of Bonus Act 1965, and the Equal Remuneration Act 1976. The single most impactful change is the redefinition of "wages." Under the new definition, basic pay plus dearness allowance plus retaining allowance must constitute at least 50% of total remuneration (CTC). If allowances exceed 50%, the excess is automatically treated as wages for statutory calculations.

This means PF contributions (currently 12% of basic by both employer and employee), gratuity, ESI, and bonus are all calculated on a potentially larger base. For a foreign company whose Indian subsidiary structures salaries with a low basic and high allowances, the cost impact can be 8-15% of total payroll.

The Code on Wages also establishes a national floor wage set by the Central Government, below which no state can fix its minimum wage. This creates a nationwide minimum baseline for the first time. Additionally, the equal remuneration provisions now cover all employers, not just those in scheduled employment, meaning every foreign company must ensure gender pay parity across all roles.

Industrial Relations Code, 2020

This code merges the Trade Unions Act 1926, the Industrial Employment (Standing Orders) Act 1946, and the Industrial Disputes Act 1947. Key changes include raising the threshold for government approval before retrenchment, layoff, or closure from 100 workers to 300 workers. This is a major pro-business change: previously, any industrial establishment with 100+ workers needed state government permission before laying off or retrenching employees. The new threshold of 300 gives foreign manufacturers and large service companies significantly more flexibility in workforce management.

Fixed-term employees now receive identical wages and benefits as permanent employees, including EPF, ESI, medical insurance, and leave. Crucially, fixed-term employees qualify for gratuity after just one year of service instead of the previous five. For foreign companies that rely heavily on project-based or fixed-term hiring in India, this substantially increases the cost of short-term engagements. A one-year fixed-term employee earning INR 50,000 per month basic would now be entitled to gratuity of approximately INR 28,850 at the end of the contract.

The IR Code also introduces the concept of a negotiating union or negotiating council, requiring trade unions to have at least 51% membership of total workers (or 20% for a negotiating council) to be recognised. This brings more structure to union interactions for foreign companies unfamiliar with Indian industrial relations practices.

Code on Social Security, 2020

Consolidating nine existing laws including the Employees' Provident Funds Act 1952, the Employees' State Insurance Act 1948, and the Maternity Benefit Act 1961, this code extends social security coverage to gig workers, platform workers, and unorganised sector workers for the first time. For foreign employers, the key changes include a unified registration system (one registration instead of separate registrations for EPF, ESI, and other schemes), expanded ESIC coverage to all establishments in notified areas regardless of employee count, and a new national social security board for unorganised workers.

The SS Code also introduces the concept of "aggregators" — digital intermediaries that connect buyers and sellers of services. If your foreign company operates a platform in India that connects service providers with customers, you may be classified as an aggregator with social security contribution obligations. The contribution rates for aggregators will be specified in the final rules but are expected to be 1-2% of annual turnover.

Another notable change: the SS Code provides for portability of benefits. An employee moving from one employer to another can carry forward their EPF and ESI benefits seamlessly through a universal account number. For foreign companies with high employee turnover, this reduces the administrative burden of managing exit formalities and PF transfers.

Occupational Safety, Health and Working Conditions Code, 2020

This code merges 13 existing laws including the Factories Act 1948 and the Contract Labour Act 1970. It introduces a single licence for staffing firms instead of state-by-state registration, mandates free annual health check-ups for employees above 40, and allows women to work in all types of establishments including night shifts with adequate safeguards. The overtime limit has been increased from 50 hours per quarter to 125 hours per quarter.

For foreign technology companies and BPOs operating in India, the night shift provision for women is particularly relevant. Under the old Factories Act, employing women between 7 PM and 6 AM was restricted. The OSH Code permits women to work night shifts provided the employer ensures adequate safety measures, transportation, and consent. Companies must maintain records of safety arrangements and report any incidents to the jurisdictional inspector.

The OSH Code also introduces the concept of a "national occupational safety and health advisory board" which will set workplace safety standards. Foreign companies in manufacturing, chemicals, and construction sectors should expect new safety compliance requirements as this board becomes operational. The code mandates that every establishment with 500 or more workers appoint a Safety Officer, and every establishment with 250 or more workers maintain a safety committee.

State-Wise Implementation Status Tracker

As of March 2026, states are in three broad categories: those with final rules notified, those with draft rules published, and those still in the drafting stage. Here is the current status.

States with Final Rules Notified (All Four Codes)

States with Draft Rules Published (Comment Period Ongoing or Completed)

States with Delayed or Pending Rules

At least 17 of India's 28 states, including Uttar Pradesh, Madhya Pradesh, Maharashtra, Gujarat, and opposition-ruled Tamil Nadu and Karnataka, have taken significant steps toward implementing the new labour codes. The Central Government is pushing for all states to adopt final rules by 1 April 2026.

The 50% Wage Rule: Payroll Restructuring Impact

The most immediately impactful change for foreign employers is the wage redefinition under the Code on Wages. Under the new definition, "wages" means all remuneration except specific excluded components. The exclusions (HRA, overtime, commissions, gratuity, etc.) cannot collectively exceed 50% of total remuneration.

Before and After: Salary Structure Example

In this example, the employer's statutory cost increases by approximately INR 3,362 per month per employee, or about 3.2% of gross CTC. For a subsidiary with 200 employees, this translates to roughly INR 80.7 lakh (approximately USD 96,000) in additional annual costs. Companies that currently structure basic pay at 20-25% of CTC face even steeper increases.

Employee Impact: Take-Home Pay Reduction

While the gross CTC remains the same, the employee's take-home pay decreases because a larger portion goes toward statutory deductions (employee PF contribution, ESI contribution). In the example above, the employee's monthly PF contribution increases from INR 3,600 to INR 6,000, reducing take-home pay by INR 2,400 per month. While this builds a larger retirement corpus for the employee, it requires careful communication to prevent employee dissatisfaction.

Industries Most Affected

The wage restructuring impact varies significantly by industry. IT and technology companies, which often structure basic pay at 35% of CTC, face moderate increases of 3-5%. Manufacturing companies, which frequently structure basic at 25-30%, face increases of 5-10%. Startups and smaller companies that structure basic pay as low as 20% of CTC face the steepest increases of 10-15%. Foreign companies in states actively competing for foreign investment may find that local authorities provide transitional guidance on implementation timelines.

Compliance Checklist for Foreign Employers

Whether your Indian operations are structured as a private limited company, a limited liability partnership, or a branch office, the following compliance steps are critical before full enforcement begins.

Immediate Actions (By March 2026)

• Salary structure audit: Review all employee salary structures against the 50% wage definition. Identify the gap between current basic pay and the required minimum.
• Cost modelling: Calculate the incremental employer cost for PF, ESI, gratuity, and bonus under the new wage definition.
• Contract labour review: Audit all staffing agency and contract labour arrangements. The OSH Code requires staffing firms to hold a single central licence rather than state-by-state registrations.
• Fixed-term employment review: If you employ fixed-term workers, they now qualify for gratuity after one year. Update employment contracts accordingly.

Pre-Enforcement Actions (By April 2026)

• Payroll system update: Modify payroll software to handle the new wage definition, recalculate PF/ESI contributions, and generate new-format pay slips.
• Standing Orders: Establishments with 300+ workers in the industrial category must file Standing Orders. The threshold has been raised from 100 to 300 under the IR Code.
• Unified registration: Register on the integrated social security portal. The SS Code mandates a single registration replacing separate EPF, ESI, and other registrations.
• Employee communication: Inform employees about changes to salary structure. While gross CTC remains the same, take-home pay may decrease as more goes toward statutory deductions.

State-Specific Actions

• Identify which state(s) your Indian employees are located in
• Check whether that state has notified final rules or is still in draft stage
• If in a state with final rules (Gujarat, Karnataka, Maharashtra, Haryana, MP), begin compliance immediately
• If in a state with draft rules, prepare for compliance but wait for final notification before making changes
• Monitor the annual compliance calendar for state-specific deadlines

Impact on Specific Employment Structures

Foreign Companies with Branch or Liaison Offices

Branch offices and liaison offices established under FEMA regulations are not exempt from labour code compliance. If your branch or liaison office has even one employee in India, the new codes apply. The OSH Code specifically covers all establishments with 10 or more workers, while the Code on Wages applies regardless of employee count.

Companies Using Employer of Record (EOR) Services

If your company uses an EOR to hire employees in India without establishing a legal entity, the EOR bears primary compliance responsibility. However, the principal employer (your foreign company) may have secondary liability under the Contract Labour provisions of the OSH Code. Ensure your EOR agreement explicitly addresses labour code compliance and indemnification.

Companies with Gig Workers or Freelancers

The SS Code introduces a framework for gig and platform workers for the first time. If your Indian operations engage gig workers (defined as workers outside a traditional employer-employee relationship who earn from such activities), you may need to contribute to a social security fund administered by the Central Government. The contribution rate and mechanism will be determined in the final rules.

Multi-State Operations

Foreign companies with employees across multiple Indian states face the most complex compliance scenario. Until all states notify final rules, you may need to comply with the new codes in some states while operating under the old laws in others. For example, a foreign company with offices in Mumbai (Maharashtra — final rules notified March 2026), Kolkata (West Bengal — drafting stage), and Chennai (Tamil Nadu — draft rules published) would need to implement the new wage structure in Mumbai while maintaining the current structure in Kolkata and preparing for imminent changes in Chennai.

The recommended approach for multi-state foreign employers is to adopt the most conservative interpretation across all locations. Restructure salaries to the 50% threshold nationwide, even in states that have not yet finalised rules, to avoid mid-year payroll disruptions when those states eventually notify their rules. This approach also simplifies payroll administration and ensures consistent employee treatment across locations.

Key Dates and Deadlines

Penalties for Non-Compliance

The new codes introduce graded penalties that are significantly higher than the legacy laws they replace.

For foreign companies, non-compliance can also trigger scrutiny from the FEMA authorities and the RBI, potentially affecting the company's permission to operate in India.

How Beacon Filing Can Help

The transition to India's new labour codes requires coordinated action across payroll, HR, legal, and finance functions. At Beacon Filing, we help foreign companies with Indian operations navigate this transition through salary structure audits, payroll restructuring, state-specific compliance mapping, and ongoing monitoring of rule notifications.

If your Indian subsidiary, branch office, or liaison office needs help preparing for the new labour codes, contact our team for a compliance readiness assessment.

Key Takeaways

• All four labour codes are in force since 21 November 2025, but full enforcement awaits final Central and State rules expected by April 2026.
• The 50% wage rule will increase statutory costs (PF, ESI, gratuity) by 3-15% depending on current salary structures.
• Gujarat, Arunachal Pradesh, Haryana, Madhya Pradesh, Karnataka, and Maharashtra have notified final state rules; other states are in draft or pending stages.
• Fixed-term employees now qualify for gratuity after one year instead of five, significantly changing the cost calculus for project-based hiring.
• Foreign employers must audit salary structures, update payroll systems, and monitor state-specific rules based on where their employees are located.