New Labour Codes in India 2026: What EOR Clients Must Know

India just rewrote its entire employment rulebook. 29 labour laws, some older than the country itself, have been replaced by four unified codes that change how salaries are structured, how workers are classified, and how quickly you need to settle dues when someone leaves.

If you're a US-based company hiring in India or an HR leader trying to figure out what actually changed versus what's just noise, this guide breaks it all down. No legalese, no filler. Just what changed, why it matters, and what you need to do about it.

What are the new labour codes in India?[toc=New Labour Codes]

India's new labour code framework consolidates 29 separate existing labour acts, some dating back to the 1920s, into four labour codes.

The codes were enacted between 2019 and 2020 and notified effective November 21, 2025, replacing a patchwork system that had become fragmented, outdated, and nearly impossible to comply with across states.

Here's what each code covers and what it replaces:

Source: pib.gov.in [India’s Labour Reforms: Simplification, Security, and Sustainable Growth]

Why was this overhaul needed?

Many of India's labour laws were framed in the pre-Independence and early post-Independence era (1930s to 1950s), when the economy and the world of work were fundamentally different.

The core problems:

• Fragmented compliance: 29 acts with inconsistent definitions of "wages," "worker," and "employee" made it a compliance nightmare for employers, especially global companies hiring in India.
• No modern work coverage: Gig and platform workers, freelancers, and fixed-term employees had zero statutory protections under the old framework.
• Overlapping laws: Wages alone had four separate acts. Social security had nine. Employers were dealing with redundant, sometimes contradictory requirements.

The second National Commission on Labour had recommended grouping existing labour laws into four to five codes on a functional basis.

The four labour codes were enacted after deliberations held in tripartite meetings with the government, employers, industry representatives, and various trade unions between 2015 and 2019, following wide-ranging consultations across stakeholders.

The result is a single framework that introduces a uniform definition of wages (the 50% basic pay rule), extends social security benefits to such workers as gig drivers and delivery partners, brings fixed-term employees at par with permanent workers, and creates a unified registration system for establishments. It is not just a rename of old laws. It is a structural reset.

When do the new labour codes take effect?[toc=Timeline]

This is where things get a little confusing, and most sources handle it poorly.

Two dates matter, and they mean different things:

Legally effective does not equal fully operational

This is the single most important distinction to understand. November 21, 2025 is the legal commencement date when the codes are deemed to be in force and definitions start applying. April 1, 2026 is the practical operational date for full alignment.

What does that mean in practice? Employers may still be using transitional or hybrid procedures until April 1, 2026, but the legal baseline is the new code rather than the old acts. You cannot pretend the old regime is still fully in force for service rendered after November 21, 2025.

No formal transition period

Here's what catches many employers off guard: although the government's press release indicated reference to a transition period, the implementing notifications do not provide for any transitional period for employers, the workforce, or authorities to transition to the new regime. That means employers must act now.

State-level variation

Because labour is a concurrent subject under India's Constitution, both the central government and state governments must notify their own respective rules before the codes are fully enforceable locally.

States like Karnataka, Maharashtra, and Kerala have notified their respective rules under all four labour codes, while Delhi has notified rules only under the Wage Code and Social Security Code and is yet to release rules under the Industrial Relations Code and OSH Code. Among early adopters, Haryana, Madhya Pradesh, Gujarat, Karnataka, and Maharashtra have issued notifications covering all four codes.

Until final central rules and remaining state rules are issued, the relevant provisions of the existing labour acts and their respective rules, regulations, notifications, and circulars will continue to remain in force to the extent they do not conflict with the new codes (under Section 24 of the General Clauses Act, 1897).

For global companies hiring remotely across multiple Indian states, this creates a patchwork situation where compliance obligations can differ by geographical location until full alignment is achieved.

How does the 50% wage rule change salary structures?[toc=50% Wage Rule]

This is the single biggest practical impact of the new labour codes in India, and it affects every employer and employee in the country.

Here's the rule in plain terms: under the Code on Wages, basic pay plus dearness allowance (DA) plus retaining allowance must make up at least 50% of total remuneration (CTC).

If excluded components (HRA, conveyance, special allowance, overtime, bonuses, employer contributions to PF, etc.) exceed 50%, the excess is automatically added back to the wage base for all statutory calculations.

Why does this matter? Because Indian employers have historically kept basic wages artificially low, often between 30% and 40% of CTC, to minimize contributions to provident fund, gratuity, and ESI.

This approach was not illegal under earlier laws, but it significantly reduced workers' long-term retirement savings.

That practice is now over.

Let's walk through what this actually looks like with real numbers.

The CTC stays the same. The employee's monthly take-home salary is reduced, but they gain significantly higher future benefits in both PF and gratuity. In this example, the take-home dip is roughly INR 1,500 per month, but PF savings jump by INR 36,000 annually (employee + employer combined).

This is not a pay cut; it is a redistribution. The money doesn't disappear; it shifts from your monthly bank transfer into your retirement savings.

For employers, the impact is more direct. Statutory costs for PF, gratuity, and ESI increase by approximately 5% to 15%, depending on how aggressively the prior salary structure was optimized. Companies that were already maintaining basic at or near 50% will see minimal change. Companies that had basic at 30% will feel the full impact.

Try our fully loaded cost calculator now and take the first step towards building your world-class team in India: Salary Calculator India: CTC to In-Hand Salary

How does the 50% rule affect PF and ESI contributions?

The cascading effect on statutory contributions is where this rule really hits both employer and employee wallets.

• Provident Fund (PF): Both employer and employee contribute 12% of basic wages (plus DA). The PF ceiling currently caps contributions at 12% of INR 15,000 per month for employers who do not opt for higher contributions. However, many companies, especially those hiring senior talent, contribute on actual basic rather than capping at INR 15,000. For these companies, a higher basic means significantly higher monthly PF contributions from both sides.
• Employees' State Insurance (ESI): The ESI salary limit stands at INR 21,000 per month in gross wages. With the new uniform definition of wages expanding what counts as "wages," some employees who were previously above this threshold may now fall within ESI coverage, because components that were previously excluded from the wage calculation now get added back in. The employee's contribution rate is 0.75% and the employer's is 3.25% of wages.
• Gratuity: This is the sleeper impact. Gratuity is calculated on last drawn basic wages. With basic moving from 35% to 50% of CTC, gratuity payouts at exit become materially larger. For long-tenured employees, this can mean lakhs more in separation payouts. We'll cover this in detail in the gratuity section ahead.

Read more: Employee Benefits in India

What changed for gig workers and platform workers?[toc=Gig & Platform Workers]

For the first time in Indian law, gig and platform workers have statutory recognition. That's not a small update. It's a category of workers that simply did not exist in the legal framework until the Code on Social Security, 2020 defined them.

Before we get into what changed, let's clarify who we're talking about. These following categories are often confused, and the labour codes introduce distinct definitions for each.

What benefits do gig and platform workers now get?

The Social Security Code empowers central and state governments to set up social security programs for unorganized, gig, and platform workers.

These programs may cover life and disability insurance, health and maternity benefits, old-age protections, and provident fund equivalents.

The social security benefits the code envisions include life insurance, disability cover, health insurance, maternity benefits, and old-age protection. This is a massive expansion of social security coverage for such workers who previously had zero statutory entitlements.

How is this funded?

Aggregators must contribute 1% to 2% of their gig-related annual turnover, subject to a maximum cap of 5% of the total amount paid to gig workers. The contribution is deposited into the Social Security Fund.

This is not structured like traditional employer contributions to PF or ESI. It's a turnover-based levy, which means it applies regardless of how many workers an aggregator engages. Aggregators that fail to make timely contributions may be required to pay interest on unpaid amounts.

Who qualifies?

Not every gig worker automatically gets these benefits. The draft central rules set specific eligibility thresholds:

• A gig or platform worker must work for at least 90 days with an aggregator in a financial year to qualify for social security benefits.
• For workers associated with multiple aggregators, the threshold is 120 days.
• The rules define a worker as "engaged" from the day they start earning income, regardless of the amount. If a worker is simultaneously associated with multiple aggregators on a given day, each engagement will be counted separately.

Workers must register on the e-Shram portal using Aadhaar-linked identification, and each worker must be mapped to a Universal Account Number (UAN) for portability of benefits across platforms.

What this means for global companies

If you're a company based in the US, UK, or Europe using freelancers or platform-based talent in India, pay attention. The line between "contractor" and "gig worker" under the social security code now carries real compliance weight.

If your engagement model looks like platform work (task-based, app-mediated, algorithmically assigned), you could be classified as an aggregator under the relevant provisions, which triggers contribution obligations.

This is separate from the worker misclassification risk that already exists under the Industrial Relations Code and the OSH Code. Companies that likewise engage independent workers in India should review their contractor arrangements against these new definitions to avoid unexpected liabilities.

How do the new codes affect gratuity and exit settlements?[toc=Gratuity & Exit Settlement]

Two changes here pack a serious punch, especially when combined: fixed-term employees now qualify for pro-rata gratuity after just one year, and the wage base for gratuity calculations is now significantly higher because of the 50% rule.

On top of that, employers must settle all final dues within 48 hours of separation.

Let's break each one down:

The double impact on gratuity payouts

The gratuity formula itself hasn't changed: (Last Drawn Wages x 15 x Years of Service) / 26. But two things feeding into that formula have changed dramatically.

First, the wage base. Since gratuity is calculated based on basic pay and dearness allowance, the shift to the 50% wage rule could directly increase the final gratuity amount. Experts suggest that in some cases, gratuity payouts could rise by 20% to 50%, depending on the salary structure.

Second, fixed-term employees now qualify after just one year instead of five. The law now mandates that fixed-term employees must receive the same wages, hours, and social security benefits as permanent employees performing the same or similar work.

This removes the cost advantage of cycling through short-term contracts and has real budget implications for companies that rely heavily on fixed-term employment or contract workers in India.

Here's a quick example:
An employee on a 2-year fixed-term contract earning INR 50,000/month in basic wages (post-50% restructuring):

Gratuity = (50,000 x 15 x 2) / 26 = INR 57,692

Under the old structure, this employee would have received zero gratuity because they never hit the 5-year threshold. Under the new codes, they walk away with nearly INR 58,000 in gratuity alone, and that amount only grows with tenure and salary.

For the principal employer, this also means that if a contractor fails to pay gratuity to contract labour, the liability falls back on you.

What does the 48-hour settlement rule mean operationally?

This is the change that will force the most operational overhaul. Under the new labour codes, an employer must complete the full-and-final settlement of an employee's wages within 48 hours of their removal, dismissal, retrenchment, or resignation.

Most companies today take 30 to 45 days for F&F processing, often bundling it into the next payroll cycle. That's no longer acceptable. Compliance with this timeline requires automated payroll systems capable of real-time leave encashment, notice period adjustment, and statutory dues calculation.

What this means practically:

• Leave balances must be calculable in real time, not reconciled at month-end.
• Gratuity provisioning needs to be current on any given day, not estimated during annual audits.
• PF contributions, bonus accruals, and dearness allowance adjustments must be system-ready for instant settlement.
• Your payroll systems must be audit-ready at all times, not just at quarter-end.

Employers must pay gratuity within 30 days of the last working day where the employee is eligible. Delays beyond 30 days attract interest. Combined with the 48-hour F&F window, this is a compliance area where manual processes simply won't cut it anymore.

Explore our complete article on Payroll in India.

For global companies hiring in India through an EOR, this is one of the most important questions to ask your provider: can they execute F&F within 48 hours, and do they have the systems to do it automatically?

What is the 4-day work week option under the new codes?[toc=4 Days Work Week]

Let's get straight to the point: India has not mandated a 4-day work week. This is one of the most misunderstood provisions in the new labour codes in India, and the hype around it has outpaced what the law actually says.

India's Labour Ministry has clarified that a four-day work week is optional under the new labour codes, with weekly hours capped at 48 and overtime rules remaining unchanged.

Here's what the Occupational Safety, Health and Working Conditions Code actually allows:

The 48-hour weekly cap is non-negotiable. The codes simply give employers flexibility in how those hours are distributed across the week. That's it.

Why this isn't really a "4-day work week"

When most people hear "4-day work week," they think of what companies in the UK and Iceland have tested: fewer hours, same pay, better productivity. That's a 32-hour model. India's version is nothing like that.

The math is inflexible. A shorter work week necessitates a longer workday, resulting in a 12-hour shift for those opting for the four-day model. You're not working less. You're compressing the same 48 hours into fewer, longer days.

A few important conditions:

• The 4-day option requires employee consent. Employers cannot unilaterally impose 12-hour shifts.
• Any work beyond 48 hours a week is treated as overtime, payable at double wages of the normal rate.
• No worker can work overtime exceeding 144 hours in any quarter of a year.
• The 12-hour workday includes break time (spread-over hours), allowing for rest periods and meal breaks.

Will companies actually adopt this?

In practice, very few are likely to. A 12-hour daily shift is physically demanding and unsustainable for most knowledge-work or service-sector roles. Experts warn of potential burnout, noting that the intense nature of a 12-hour shift may not be sustainable for physically demanding jobs or those requiring high cognitive load.

The compressed schedule may find limited adoption in manufacturing or shift-based operations where 12-hour rotations are already common. But for the vast majority of India's white-collar workforce, and certainly for remote employees working for global companies, the 5-day or 6-day structure will remain the standard.

What are the key changes for women workers?[toc=Women Workers]

Most sources covering the new labour codes mention the night shift provision in a single line and move on. But the changes for women employees are broader than that.

Here's everything that's actually changed:

1. Night shift access across all sectors

Under the old framework, women were restricted from working night shifts (7 PM to 6 AM) in most industries. The Occupational Safety, Health and Working Conditions Code removes that blanket restriction.

The new code formally allows women to work at night and during early morning hours, in all roles, and only with their consent, provided that the employer ensures safety measures are in place.

But consent alone isn't enough. Employers must meet specific safety obligations:

• Mandatory duties include obtaining prior consent from the employee, providing safe transportation facilities, and supporting essential amenities such as well-lit washrooms and drinking water facilities.
• The workplace, including specified areas, should have suitable provisions for CCTV surveillance, and surveillance should also be provided on the way to these facilities.
• No woman can be employed in violation of the maternity benefit provisions laid down under the Social Security Code, 2020.

This is a meaningful change for global companies running 24/7 operations in India, particularly in IT, BPO, and customer support. It opens up shift flexibility while putting the compliance burden squarely on the employer to ensure safe working conditions.

2. Equal pay, explicitly extended

The Code on Wages makes equal remuneration for work of a similar nature mandatory across all genders. The new labour codes in India now provide gender-neutral pay and job opportunities, prohibiting discrimination, including against transgender persons.

This isn't entirely new in principle (the Equal Remuneration Act existed before), but the consolidation into the wage code strengthens enforcement by applying a uniform definition across all establishments and all worker categories.

3. Mandatory representation on grievance committees

Women employees must be included in the grievance redressal committee in proportion to their workforce share. Every industrial establishment employing 20 or more workers is required to set up this committee, with equal representation from employers and workers.

This is not just a recommendation. It's a structural requirement under the Industrial Relations Code 2020 and the draft central rules.

4. Expanded definition of "family"

The new codes update the family definition for female employees by adding parents-in-law, ensuring wider dependent coverage and supporting inclusive policies.

This impacts benefits eligibility under the Social Security Code, particularly for ESI medical coverage and leave entitlements. For women employees whose parents-in-law depend on them, this expands the safety net meaningfully.

5. Maternity benefits retained and consolidated

Maternity benefits, including 26 weeks of paid leave, are retained under the Social Security Code. The new codes extend maternity benefits, including 26 weeks of paid maternity leave, to women in the unorganized sector.

Additionally, employers have new responsibilities to provide shared creche facilities (for establishments with 50 or more employees) or to pay a child care allowance of INR 500 per child, applicable for up to two children.

For global companies building teams in India, these provisions mean your employment contracts, shift policies, safety protocols, and benefits structures need to explicitly account for these gender-specific requirements. If you're using EOR Services, your provider should already be building these into their standard compliance framework.

What should employers do to prepare for compliance?[toc=What Employer Need to Know]

Most guides on this topic give you vague advice like "review your policies" or "consult your legal team." That's not helpful when you have payroll cycles running and the central rules are being finalized in real time.

Here’s a concrete, step-by-step checklist built from our experience helping global companies navigate Indian compliance as their EOR partner that prioritizes what to tackle first:

Step 1: Audit current salary structures against the 50% wage rule

Model the impact per grade and geographical location. Identify which employees have basic pay below 50% of CTC and calculate the cost of restructuring. This is the single highest-priority action because it cascades into everything else.

Step 2: Reclassify workforce categories

Map every worker into the correct category under the new codes: permanent employees, fixed-term employees, contract workers, gig and platform workers. Misclassification under the Industrial Relations Code or Social Security Code carries real penalties.

Step 3: Update appointment letters and employment contracts.

The codes mandate mandatory appointment letters for every worker. Contracts must reflect the new wage definition, working hours flexibility, overtime rules, and gratuity eligibility for fixed-term employees. Old templates drafted under the repealed acts are no longer compliant.

Step 4: Recalculate PF, ESI, gratuity, and bonus liabilities on the new wage base

With basic wages now at 50%, your PF contributions, ESI deductions, and gratuity provisioning all increase. Run the numbers before the next payroll cycle, not after.

Step 5: Automate full-and-final settlement to meet the 48-hour requirement

If your current F&F process takes 30 to 45 days through the next payroll cycle, you need system upgrades. Leave balances, dearness allowance adjustments, and gratuity calculations must be computable in real time.

Step 6: Establish or update grievance redressal committees

Mandatory for every industrial establishment with 20 or more workers. Must include equal employer-worker representation with proportionate representation of women employees.

Step 7: Ensure digital record-keeping.

The codes mandate electronic registers for attendance, wages, leave, and compliance returns. Paper-based systems are no longer compliant. The inspector-cum-facilitator model uses web-based, algorithm-driven inspections, meaning your records need to be audit-ready at all times.

Step 8: Monitor state-specific rule notifications

Because state governments must notify their own respective rules, compliance requirements can differ by location. Build a tracking process for state-level notifications, or work with a compliance partner who does this for you.

What are the penalties for non-compliance?

The new labour codes shift enforcement from a punitive model to a compliance-first approach, but the penalties are still significant when you don't comply.

A few things worth noting about enforcement:

• The traditional role of "Inspector" has been replaced with "Inspector-cum-Facilitator," emphasizing guidance and advisory roles alongside enforcement. You get a 30-day remediation window to fix violations before legal action is initiated.
• Only six types of offence now attract imprisonment for first-time violations, largely restricted to serious safety lapses and deliberate social security evasion.
• Procedural lapses, including delays in filing returns or maintaining registers, are fully decriminalized and treated as administrative contraventions.
• Inspections are algorithm-driven and randomized, reducing arbitrary harassment.

The system is designed to be fair, but it's not forgiving for repeat offenders. Get compliant before your first inspection, not after.

How Wisemonk helps global companies navigate India's new labour codes[toc=How Wisemonk EOR Helps]

If you're hiring in India without a local entity, here's the reality: every compliance obligation covered in this guide (salary restructuring, PF recalculation, gratuity provisioning, 48-hour F&F settlement, state-specific rule tracking) falls on your Employer of Record (EOR). Not on you directly, but on the EOR you choose. And the wrong choice here can be expensive.

Wisemonk is an India-native EOR platform built from the ground up for India's labour codes, tax structures, and hiring culture. We manage 2,000+ employees across India for 300+ global companies and process $20M+ in Indian payroll. This is not a bolt-on India offering inside a global platform. It is our entire focus.

Here's what that means in the context of the new labour codes:

• 50% wage restructuring, handled: Our in-house payroll platform has already been updated to comply with the new wage definition. Salary structures are restructured before your next payroll cycle, not months after the rules are finalized.
• State-by-state compliance tracking: With states like Karnataka, Maharashtra, and Kerala already on final rules while others are still in draft, we track every notification so you don't have to.
• Gratuity provisioning for fixed-term hires: We provision gratuity from year one for fixed-term employees, not year five. The liability is modeled upfront so there are no surprises at exit.
• 48-hour F&F settlement, automated: Our systems calculate leave encashment, notice period adjustments, and statutory dues in real time, so we can settle final payments within the 48-hour window the codes now require.
• Full PF, ESI, and tax filing compliance: Managed end-to-end through our own infrastructure in India, with no dependency on third-party intermediaries.

Questions to ask your EOR provider right now

If you already have an EOR in India, use this as a checklist.

If they can't answer these clearly, that's a red flag:

1. Have you restructured salary components to comply with the 50% wage rule?
2. How are you provisioning gratuity for fixed-term employees from year one?
3. Can you execute full-and-final settlement within 48 hours of separation?
4. How are you tracking state-level rule notifications across multiple jurisdictions?
5. What is your process for reclassifying contractors vs. gig workers under the new social security code?

Wisemonk EOR offers transparent pricing with no hidden FX markups, no surprise setup costs, and you can get your first hire onboarded and compliant within 24 to 48 hours.