India's Four Labour Codes (2019-2020)

By Dev Rao | Updated March 2026

What Are India's Four Labour Codes?

India's Four Labour Codes are a set of comprehensive statutes — the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020, and the Occupational Safety, Health and Working Conditions Code, 2020 — that replace 29 existing central labour laws. All four codes were brought into force on 21 November 2025, with final Central Rules expected to be notified by 1 April 2026. Businesses have a one-year transition period until 20 November 2026 to migrate existing registrations to the new unified system.

For foreign companies operating in India through a wholly-owned subsidiary, branch office, or liaison office, these codes fundamentally reshape employer obligations. The most significant change is the redefinition of "wages" — if allowances exceed 50% of total remuneration, the excess is added back to wages for computing statutory contributions like ESI and EPF. This single change can increase employer costs by 8-12% of payroll.

The consolidation replaces a patchwork of legislation — some dating back to 1923 — with a streamlined, digitized compliance framework. Employers now complete one online registration instead of 6-10 separate ones and file one unified annual return instead of 15-20 reports.

Legal Basis

• Code on Wages, 2019 (Act No. 29 of 2019) — Received presidential assent on 8 August 2019. Replaces the Payment of Wages Act 1936, Minimum Wages Act 1948, Payment of Bonus Act 1965, and Equal Remuneration Act 1976.
• Industrial Relations Code, 2020 (Act No. 35 of 2020) — Received presidential assent on 29 September 2020. Replaces the Trade Unions Act 1926, Industrial Employment (Standing Orders) Act 1946, and Industrial Disputes Act 1947.
• Code on Social Security, 2020 (Act No. 36 of 2020) — Received presidential assent on 29 September 2020. Replaces 9 statutes including the EPF Act 1952, ESI Act 1948, Payment of Gratuity Act 1972, Maternity Benefit Act 1961, and Employees' Compensation Act 1923.
• Occupational Safety, Health and Working Conditions Code, 2020 (Act No. 37 of 2020) — Received presidential assent on 29 September 2020. Replaces 13 statutes including the Factories Act 1948, Contract Labour Act 1970, Inter-State Migrant Workmen Act 1979, and Mines Act 1952.

The 29 Laws Replaced: Before and After

Code on Wages, 2019: Universal Minimum Wage and Payment Rules

The Code on Wages extends statutory minimum wages to all employees across all sectors — organized and unorganized — for the first time. Previously, the Minimum Wages Act 1948 covered only "scheduled employments" listed by the government, leaving millions of workers without legal protection.

National Floor Wage

Under Section 9, the Central Government fixes a national floor wage — currently INR 178 per day (approximately INR 5,340 per month). No state government can set a minimum wage below this floor. The floor wage may differ by geographical area. States typically set their actual minimum wages significantly higher — for example, Delhi's minimum wage for unskilled workers is approximately INR 17,494 per month.

The 50% Wages Rule

The most impactful provision for employers is the redefinition of "wages" under Section 2(y). Wages include basic pay, dearness allowance, and retaining allowance. If the total of excluded components (HRA, conveyance, overtime, etc.) exceeds 50% of total remuneration, the excess is added back into "wages" for computing EPF, ESI, gratuity, and bonus. This forces employers to restructure compensation — basic pay can no longer be set artificially low to minimize statutory contributions.

Payment Timelines

Wages must be paid by the 7th of the following month for establishments with fewer than 1,000 workers, and by the 10th for establishments with 1,000 or more workers. Overtime wages must be at least twice the normal rate. Minimum wages must be reviewed and revised at intervals not exceeding 5 years.

Industrial Relations Code, 2020: Strikes, Standing Orders, and Fixed-Term Employment

Standing Orders Threshold: 100 to 300

The requirement for certified standing orders (rules governing conditions of employment) now applies only to establishments with 300 or more workers, up from 100 under the old Industrial Employment (Standing Orders) Act 1946. Establishments below 300 workers follow model standing orders prescribed by the government. This is a significant deregulation — the vast majority of foreign-invested companies in India employ fewer than 300 people.

Fixed-Term Employment

The IR Code formally recognizes fixed-term employment (FTE) for the first time at the central level. Key rules: FTE workers receive the same wages, allowances, and benefits as permanent employees (parity mandate). FTE workers become eligible for gratuity after just 1 year of service (instead of the usual 5 years). However, FTE workers are not eligible for retrenchment compensation at contract expiry and cannot participate in strikes called by other workers.

Retrenchment and Closure

Prior government permission for layoffs, retrenchment, and closure is required only for establishments with 300 or more workers (up from 100). Employers must contribute 15 days' wages per retrenched worker to a re-skilling fund. Workers with one year of continuous service are entitled to 15 days' average pay per year of service as retrenchment compensation. 60 days' notice is required before retrenchment.

Trade Union Recognition

A trade union must have at least 51% membership of the workers in an establishment to be recognized as the sole negotiating union. If no union meets this threshold, a negotiating council of unions representing 20% or more membership is formed.

Code on Social Security, 2020: Gig Workers, EPF, and ESI Expansion

EPF and ESI Coverage

EPF applies to establishments with 20 or more employees, regardless of industry type (previously limited to notified industries). ESI applies to establishments with 10 or more employees. For hazardous occupations, ESI is mandatory with even 1 employee. Voluntary ESI membership is available for smaller establishments if both employer and employees agree.

Gig and Platform Worker Coverage

For the first time in Indian labour law, Sections 113 and 114 extend social security to gig workers (freelancers, independent contractors) and platform workers (those working through apps like Uber, Zomato, Swiggy). Aggregators must contribute 1-2% of annual turnover, capped at 5% of the amount paid or payable to gig/platform workers, to a Social Security Fund. Workers become eligible for government-notified benefits including life and disability insurance, health and maternity benefits, and old-age protection.

Maternity Benefits

Women employees are entitled to 26 weeks of paid maternity leave (with at least 80 days of service in the preceding year). For adoption and surrogacy, the entitlement is 12 weeks. Establishments with 50 or more employees must provide creche facilities; if not provided, a minimum allowance of INR 500 per month per child applies. Nursing mothers are allowed 2 breaks daily until the child reaches 15 months.

Gratuity Changes

Gratuity is calculated at 15 days' wages for each completed year of service (or part thereof exceeding 6 months), based on last drawn wages. The maximum gratuity cap is INR 20 lakh. The five-year continuous service requirement is waived in cases of death, disablement, fixed-term contract expiry, or government-notified events.

OSH Code, 2020: Safety, Working Hours, and Inter-State Migrants

Working Hours and Overtime

No employee can be required to work more than 8 hours per day and 48 hours per week. The maximum permissible work day is 12 hours (including rest intervals), applicable only in exceptional circumstances. Overtime is payable at twice the normal rate. The spread-over (total span of time between start and end of work, including breaks) cannot exceed 12 hours in a day.

Women and Night Shifts

Women are now entitled to work in all establishments for all types of work, including night shifts (before 6 AM and beyond 7 PM). This overturns the old Factories Act restriction. Employers must ensure: written consent from the woman worker, adequate safety measures, well-lit workplace including routes to facilities such as washrooms, and transportation for pickup and drop-off.

Inter-State Migrant Worker Protections

The Code broadens the definition of inter-state migrant workers and introduces new protections. Employers must provide annual to-and-fro journey allowance. Welfare benefits are made portable across states through a national worker database. Contractors employing inter-state migrants must provide suitable working conditions and displacement allowance of up to 50% of monthly wages.

Factory Threshold Changes

The applicability threshold for factories has been raised from 10 to 20 workers (with power) and from 20 to 40 workers (without power). The contract labour threshold is raised from 20 to 50 workers.

Key Threshold Changes: Old Laws vs. New Codes

How This Affects Foreign Investors in India

Foreign companies with Indian operations face several immediate compliance obligations:

Payroll Restructuring

The 50% wages rule is the single biggest cost driver. If your Indian subsidiary structures CTC with basic pay at 30-35% (common in India), you will need to restructure. Either increase basic pay to at least 50% of CTC — thereby increasing EPF, ESI, and gratuity contributions — or accept that the excess allowances will be reclassified as wages anyway. Major companies including TCS, Infosys, and L&T have already begun restructuring compensation in anticipation of higher statutory liabilities.

Unified Registration

Foreign subsidiaries previously needed separate registrations under the Factories Act, Shops and Establishments Act, Contract Labour Act, EPF Act, and ESI Act. The new codes introduce a single unified registration with one composite number. Existing registrations must be migrated by 20 November 2026.

Fixed-Term Employment for Projects

Foreign companies setting up project offices in India can now use fixed-term employment contracts with clear legal backing. The parity mandate means FTE workers cost the same as permanent employees in terms of wages and benefits, but the contractual certainty of a fixed end-date reduces the complexity of closure and compliance obligations.

Gig Economy Platforms

If your company operates a digital platform in India using gig or platform workers, you are now classified as an "aggregator" under the Social Security Code and must contribute 1-2% of annual turnover toward the Social Security Fund. This is India's first statutory recognition that gig workers deserve social protection.

Implementation Status and Timeline

As of March 2026, the implementation is in a transitional phase:

• 21 November 2025: All four codes came into force nationwide
• 30 December 2025: Ministry of Labour published draft Central Rules in the Official Gazette
• January-February 2026: Public consultation period (30 days for IR Code rules, 45 days for the other three codes)
• 1 April 2026 (expected): Final Central Rules to be notified, enabling full enforcement
• 20 November 2026: Deadline for migrating existing registrations to the unified system

Several state governments have notified final state rules, while others have published drafts. Until the Central and all State rules are finalized, certain provisions remain operationally incomplete — but the parent codes are in force, and employers should not wait to begin compliance preparation.

Common Mistakes

• Assuming the codes are not yet effective because final rules are pending. The four codes are in force since 21 November 2025. The absence of final Central Rules does not mean you have no obligations — the parent statutes are operative, and several state rules are already notified. Employers caught non-compliant face penalties of INR 50,000 to INR 1 lakh.
• Ignoring the 50% wages rule until payroll audit. Many foreign employers continue structuring CTC with 30-35% basic pay, believing this is still acceptable. Under the new definition, if allowances exceed 50% of total remuneration, the excess is automatically added back for EPF/ESI/gratuity computation. The cost impact compounds retroactively if discovered during inspection.
• Treating fixed-term employees as a cheaper alternative to permanent staff. The IR Code mandates complete parity — same wages, allowances, and benefits. The only real advantage of FTE is contractual certainty on end-date and exemption from retrenchment compensation, not cost savings.
• Failing to register as an aggregator for gig/platform worker contributions. Companies using freelancers or app-based workers in India often assume these workers are independent contractors with no employer obligations. Under the Social Security Code, aggregators must contribute to the Social Security Fund regardless of whether these workers are classified as employees.
• Not updating standing orders for establishments that previously had them. If your establishment had certified standing orders under the old law, you must update them to reflect the new code's requirements (revised worker classifications, fixed-term employment category, updated grievance mechanisms). Simply relying on pre-existing standing orders is non-compliant.

Practical Example

TechBridge Solutions GmbH, a German enterprise software company, established a wholly-owned subsidiary in Bangalore in 2023 with 85 employees. Here is how the labour codes affect their operations:

Before the codes (pre-November 2025):

• Average CTC per employee: INR 12 lakh per annum
• Basic pay structured at 35% of CTC: INR 4.20 lakh (INR 35,000/month)
• Allowances (HRA, conveyance, special allowance): INR 7.80 lakh (65% of CTC)
• EPF employer contribution (12% of basic): INR 50,400/year per employee
• Total EPF cost for 85 employees: INR 42.84 lakh/year

After the codes (50% rule applied):

• Allowances at 65% exceed the 50% cap by 15% of CTC
• Excess of INR 1.80 lakh per employee is added back to "wages"
• Adjusted wages for EPF computation: INR 4.20 lakh + INR 1.80 lakh = INR 6.00 lakh (INR 50,000/month)
• EPF employer contribution (12% of adjusted wages): INR 72,000/year per employee
• Total EPF cost for 85 employees: INR 61.20 lakh/year
• Annual increase in EPF cost alone: INR 18.36 lakh (a 43% jump)

TechBridge also employs 12 fixed-term contractors for a 14-month SAP implementation project. Under the new code, these FTE workers must receive the same wages and benefits as permanent employees. After completing 1 year, each becomes eligible for pro-rata gratuity — an obligation that did not exist under the old framework. At an average monthly wage of INR 60,000, gratuity liability per FTE worker after 14 months is approximately INR 34,615 (15/26 x INR 60,000 x 1 year). Total additional gratuity liability: INR 4.15 lakh.

TechBridge's total additional annual cost from the new codes: approximately INR 22.51 lakh — a meaningful amount for a mid-size subsidiary that needs to be budgeted and reported to the German parent company alongside corporate tax obligations.

Key Takeaways

• India's four labour codes, effective 21 November 2025, replace 29 fragmented laws with a unified compliance framework — the biggest labour reform since independence
• The 50% wages rule forces payroll restructuring and increases employer costs for EPF, ESI, and gratuity contributions by 8-12% of payroll for most foreign subsidiaries
• Standing orders and government permission for retrenchment now apply only to establishments with 300+ workers, significantly deregulating small and mid-size operations
• Gig and platform workers receive statutory social security for the first time, with aggregators required to contribute 1-2% of annual turnover to the Social Security Fund
• Fixed-term employees receive full parity with permanent workers and become eligible for gratuity after just 1 year of service
• Final Central Rules are expected by 1 April 2026, but the parent codes are already in force — employers should begin compliance preparation immediately

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