December 30, 2025 | 1 minute read

India Implements Major Labour Law Reforms

by activpayroll team

India has enacted a significant overhaul of its labour regulatory framework with the implementation of four consolidated Labour Codes, replacing 29 existing laws. The changes modernise compliance, expand worker protections, and simplify processes in support of the country’s wider ease-of-doing-business agenda. For global payroll and mobility teams, the reforms introduce new compliance obligations, operational adjustments, and implications for compensation structures.

Code on Wages, 2019

The Code consolidates wage-related legislation and introduces a unified definition of “wages” across all four Labour Codes.

Key measures include:

Universal minimum wage coverage across organised and unorganised sectors.
A national floor wage, below which state minimum wages cannot fall.
Mandatory payment timelines, with wages due within seven days of the following month.
A two-day Full and Final settlement requirement, representing a major shift from traditional 30–45-day timelines.
Gender-neutral protections, including explicit coverage for transgender employees.

Industrial Relations Code, 2020

The IR Code aims to provide a more stable industrial relations framework while allowing greater workforce flexibility.

Key measures include:

Legally recognised Fixed-Term Employment (FTE) with full parity in wages and benefits.
Gratuity eligibility after one year for FTE workers.
Higher thresholds for approval requirements relating to layoffs, retrenchment, and closure, now applying to establishments with more than 300 workers (state-dependent).
Mandatory 14-day strike notice across all industries.
Establishment of a Worker Re-Skilling Fund, funded by 15 days’ wages per retrenched worker.

Code on Social Security, 2020

The Code consolidates nine social security laws and expands coverage significantly.

Key measures include:

Pan-India ESIC coverage for establishments with 10+ employees and enhanced EPFO applicability for establishments with 20+.
Formal recognition of gig and platform workers, with aggregator contributions of 1–2% of annual turnover (capped at 5% of payouts to workers).
Continued entitlement to 26 weeks’ maternity leave, optional post-maternity work-from-home arrangements, and mandatory crèche facilities for establishments with 50+ employees.
Commuting accidents recognised as employment-related for compensation purposes.
Development of a national worker database to support benefit portability.

Occupational Safety, Health and Working Conditions (OSH) Code, 2020

The OSH Code streamlines working condition requirements and introduces digital-first compliance processes.

Key measures include:

One Nation, One Licence: a single, five-year all-India licence for contract labour providers.
Higher contract labour threshold, increasing applicability from 20 to 50 workers.
Flexibility to schedule 8–12 hour workdays within a weekly limit of 48 hours, enabling compressed workweeks by agreement.
Mandatory appointment letters for all workers.
Permission for women to work night shifts, subject to consent and safety provisions.
Annual health check-ups for employees above the specified age threshold.
Expanded protections for inter-state migrant workers, including journey allowances and Aadhaar-linked portability.

Unified Definition of “Wages”

A single wage definition now applies across all Labour Codes, reducing historical ambiguity and affecting calculations for PF, Gratuity, ESI and other statutory benefits.

Core inclusions: Basic Pay, Dearness Allowance, Retaining Allowance.
Specified exclusions: HRA, overtime, commissions, employer PF contributions and other listed allowances.
The 50% Rule: If exclusions (a–i) exceed 50% of total remuneration, the excess must be added back as deemed wages, increasing the statutory base.

This may lead to:

Higher employer PF contributions.
Increased gratuity valuations.
Potential reductions in employee net pay, requiring clear communication.

Implications for Global Payroll and Mobility Teams

Payroll & Finance

Review compensation structures to ensure Basic + DA meet the 50% threshold.
Recalculate actuarial gratuity liabilities.
Redesign exit workflows to support two-day settlement.

HR & Legal

Update employment contracts and policies to reflect new provisions.
Review FTE usage and contractor engagement models.
Confirm vendor compliance with revised licensing and minimum wage obligations.

Communication

Prepare employee briefings regarding potential changes to net pay due to PF adjustments.
Reinforce awareness of updated working hours, night shift rules and appointment letter requirements.

India’s Labour Codes represent a major consolidation of labour law, introducing unified definitions, streamlined processes and expanded worker protections. Organisations operating in India should reassess payroll structures, compliance exposure and workforce policies to ensure readiness under the new framework.

India – Global Insights

For further detailed guidance on payroll, employment law and compliance in India, visit our India Global Insights on the activpayroll website.

Next Steps

For more information on India’s Labour Law Reforms, please get in touch. Complete our Contact Us form and a member of our expert team will be happy to assist with your queries.

India Implements Major Labour Law Reforms

Implications for Global Payroll and Mobility Teams

India – Global Insights

Next Steps

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