The four Labour Codes consolidate twenty-nine laws into one framework. Most employers are not yet ready.
For seven decades, Indian employers operated under 29 separate central labour laws. The four Codes change everything: a new wages definition, fixed-term employment as a legal category, women in night shifts, social security for gig workers, and single registration replacing dozens. Implementation is rolling out state by state through 2026.
Four Codes. Twenty Nine Laws. One Framework.
For seven decades, Indian employers operated under 29 separate central labour laws plus dozens of state amendments. Each law had its own definitions, its own thresholds, its own returns, its own inspectors. A single factory in Maharashtra had to comply with the Factories Act 1948, the Industrial Disputes Act 1947, the Minimum Wages Act 1948, the Payment of Wages Act 1936, the Payment of Bonus Act 1965, the Payment of Gratuity Act 1972, the Contract Labour Act 1970, the Trade Unions Act 1926, the Employees Provident Funds Act 1952, the Employees State Insurance Act 1948, the Maternity Benefit Act 1961, the Equal Remuneration Act 1976, and several others. Each with its own registers, returns, inspectors, and penalties.
The four Labour Codes consolidate this fragmented universe into a single integrated framework.
Code on Wages 2019 consolidates four laws governing wages: Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, and Equal Remuneration Act.
Industrial Relations Code 2020 consolidates three laws governing industrial relations: Industrial Disputes Act, Trade Unions Act, and Industrial Employment (Standing Orders) Act.
Code on Social Security 2020 consolidates nine laws governing social security: EPF Act, ESI Act, Payment of Gratuity Act, Maternity Benefit Act, Employee Compensation Act, Cine Workers Welfare Fund Act, Building and Other Construction Workers Cess Act, and the Unorganised Workers Social Security Act.
Occupational Safety, Health and Working Conditions Code 2020 consolidates thirteen laws governing safety, health, and working conditions: Factories Act, Mines Act, Dock Workers Act, Building and Construction Workers Act, Plantations Labour Act, Contract Labour Act, Inter State Migrant Workmen Act, Working Journalists Act, Working Journalists (Fixation of Rates of Wages) Act, Motor Transport Workers Act, Sales Promotion Employees (Conditions of Service) Act, Beedi and Cigar Workers Act, and Cine Workers and Cinema Theatre Workers Act.
The transformation is not cosmetic. The Codes change definitions, restructure compensation, expand coverage, and rebalance employer worker obligations. Organisations that treat the Codes as a renaming exercise will discover the magnitude of operational change too late.
The Wages Definition That Reshapes Indian CTC
The single most consequential change in the Code on Wages is the new uniform wages definition. Section 2(y).
Wages means all remuneration payable to a person employed in respect of employment, including basic pay, dearness allowance, and retaining allowance. Crucially, the definition includes an exclusion list of allowances that are not wages: bonus payable under any law not forming part of remuneration, value of housing accommodation or supply of light water medical attendance or other amenity excluded under government order, employer contribution to provident fund or pension, conveyance allowance, sums paid to defray special expenses, house rent allowance, remuneration payable under any award or settlement.
Then comes the proviso that changes everything: where the excluded allowances exceed one half of all remuneration, the excess shall be added to wages.
In practical terms, the proviso means wages must be at least 50% of total CTC. If basic plus DA equals 30% of CTC and allowances make up 70% of CTC, the allowances exceed 50% by 20 percentage points. That 20% excess is statutorily deemed to be wages. Provident fund must be calculated on it. Gratuity must be calculated on it. Bonus must be calculated on it. Leave encashment must be calculated on it. Overtime must be calculated on it.
Most Indian CTC structures place wages at 30 to 40% of total CTC. The new definition forces these to either restructure to 50% or accept that allowances above 50% will be deemed wages and statutory contributions will rise.
For an employer with annual CTC of one lakh rupees per month per employee currently structured as 30% wages and 70% allowances, the impact is substantial:
• Provident fund contribution rises from 12% of 30,000 (3,600 monthly) to 12% of 50,000 (6,000 monthly). Increase: 67%.
• Gratuity provision rises proportionately, increasing actuarial liability significantly for older organisations.
• Bonus calculation, if applicable, increases.
• Overtime rates rise.
The cumulative impact across a workforce of thousands is material to the financial statements. Forewarned employers are restructuring CTC now. Unprepared ones will face a one time spike when their state notifies the rules.
Fixed Term Employment: A New Legal Category
The Industrial Relations Code formally recognises fixed term employment as a legitimate employment category nationwide. This is a fundamental shift in Indian employment law.
A fixed term employee is one engaged for a specified period under a written employment contract. The contract specifies the duration, the work to be performed, the wages, working hours, and statutory benefits. At the expiry of the term, the contract ends without constituting retrenchment.
Critical attributes of fixed term employment under the Code:
Parity of wages, hours and conditions. A fixed term employee is entitled to wages, working hours, social security, and statutory benefits at par with permanent employees doing the same or similar work. Employers cannot use fixed term contracts to lower compensation below permanent employee levels.
Pro-rata gratuity without service threshold. Permanent employees become eligible for gratuity after five years of continuous service. Fixed term employees become eligible on pro-rata basis without the five year minimum. A fixed term employee engaged for two years receives 30 days of last drawn wages for each year as gratuity. This closes a longstanding gap that allowed employers to use successive short term contracts to avoid gratuity.
No retrenchment notice or compensation on expiry. When the fixed term ends, the contract concludes naturally. The employer does not need to issue retrenchment notice or pay retrenchment compensation. This provides flexibility for project based and seasonal hiring.
Eligibility for full statutory benefits during term. Provident fund, ESI, leave, maternity benefit, and other statutory entitlements apply during the fixed term period.
Fixed term employment is now a legitimate alternative to permanent employment. Used responsibly it provides organisations with workforce flexibility for project work, seasonal demand, and skill specific engagements. Used as a substitute for permanent employment to suppress benefits, it invites litigation. The contract drafting matters. The accrual accounting matters. The exit terms matter.
Working Hours, Overtime, and Women in Night Shifts
The OSH Code restructures working hour provisions and removes long standing restrictions on women in night shifts.
Daily and weekly limits. Maximum eight hours of work per day with a weekly cap of 48 hours. Overtime is permitted up to four hours per day taking the total to twelve hours. Overtime beyond the daily limit attracts double wage rates and requires worker consent.
Spread over. The working hours including breaks and overtime cannot exceed twelve hours in a day. Within those twelve hours, intervals for rest must be provided after specified work durations.
Quarterly overtime limit. Aggregate overtime cannot exceed 125 hours in a quarter. State governments may relax this for specific sectors with notification.
Women in night shifts. The OSH Code permits women to work in night shifts (between 7pm and 6am) with their consent. Earlier prohibitions under the Factories Act 1948 are removed. However, employers must provide:
• Adequate safety arrangements at the workplace
• Holiday and rest provisions
• Protection from sexual harassment (Internal Committee, complaint mechanism)
• Free transport to and from the workplace, with security personnel
• Rest rooms and other amenities including separate toilets
• Notification to the appropriate government of women workers in night shifts and the safety arrangements
This change unlocks night shift roles for women across manufacturing, BPO, IT services, hospitality, and healthcare. It also imposes substantive employer obligations. The transport requirement alone is operationally significant for organisations operating in industrial estates without public transport at night.
Compliance Simplification: One Registration, One Licence, One Return
One of the most operationally valuable benefits of the Codes is compliance simplification. The previous regime required multiple registrations, multiple licences, multiple registers, and multiple returns under different acts. The Codes consolidate these.
Single registration. An establishment registers once under the relevant Code and the registration suffices for all provisions of that Code. Earlier separate registrations under EPF, ESI, Shops and Establishments, Factories, and Contract Labour are merged into one process per Code.
Single licence. The OSH Code permits a single licence covering factories, mines, dock workers, building and construction works, beedi and cigar workplaces, and contractors. Earlier separate licences under each act are merged.
Single return. The Codes contemplate a single annual return covering all obligations under that Code. Earlier multiple monthly, quarterly, and annual returns under different acts are merged.
Single inspector. The OSH Code appoints inspectors cum facilitators with broader powers covering all OSH provisions. Earlier inspectors had jurisdiction limited to specific acts.
The simplification reduces administrative burden but requires new compliance processes. Organisations must inventory current registrations, licences, and returns and map the migration path. The transition period varies by state. Some states permit existing registrations to continue until expiry. Others require fresh registration under the Codes within specified timelines.
The State by State Rollout: Why Implementation Varies
Labour is a concurrent subject under the Constitution. Both Parliament and state legislatures can make law. The Codes are central legislation, but state governments must notify their own rules to operationalise the Codes within their jurisdiction.
This is why nationwide implementation has been gradual. As of late 2025, the rollout status is approximately:
States with rules notified for all four Codes: Madhya Pradesh, Uttar Pradesh, Jammu and Kashmir, Uttarakhand, Bihar, Karnataka, Gujarat, Manipur, Odisha, Punjab, Haryana, Andhra Pradesh, and others. These states are operationally ready.
States with draft rules published, awaiting notification: Maharashtra, Telangana, West Bengal, Kerala, Tamil Nadu, Rajasthan, Chhattisgarh, and others. These states are at advanced stage. Notification is anticipated through 2026.
States that have not finalised rules: A few states are still consulting stakeholders. They may notify rules later in 2026 or 2027.
For multi state employers, this creates compliance complexity. The Codes provide the framework but operational compliance follows state notification. An employer operating in Maharashtra and Karnataka may face Code based compliance in Karnataka while continuing to comply with the legacy laws in Maharashtra until that state notifies its rules.
Practical implications:
• Track state notifications continuously. Subscribe to state labour department notifications.
• Maintain dual compliance during transition. Some states under Codes, others under legacy laws.
• Update HR policies state by state. A single national policy may be inadequate.
• Recalibrate compensation, gratuity provisions, and PF contributions state by state.
• Train HR teams on the differential rules.
The implementation timeline is fluid. Strategic certainty must be combined with operational adaptability.
The Employer Compliance Roadmap
For an employer preparing for Labour Code implementation, the roadmap is sequenced.
Phase 1: Diagnostic (Now)
Audit current compensation structures across employee bands. Identify employees where wages constitute less than 50% of CTC. Quantify the financial impact of restructuring. Inventory current registrations, licences, and registers. Map state by state legacy compliance obligations.
Phase 2: CTC Restructuring
Redesign CTC structures to ensure wages constitute at least 50% of total compensation. This may involve increasing basic pay and reducing certain allowances, or restructuring tax efficient components. Communicate clearly to employees that CTC is unchanged but the internal allocation has shifted.
Phase 3: Contract and Policy Updates
Update appointment letters, employment contracts, fixed term employment contracts, HR policies, and employee handbook. Specify provisions for working hours, leave, gratuity, fixed term employment, and women in night shifts where applicable.
Phase 4: Provisioning and Accruals
Recalculate gratuity provisions and actuarial liability accounting for fixed term employees and the new wages definition. Adjust provident fund contributions on new wages base. Update bonus calculation methodology. Update overtime calculation methodology.
Phase 5: Compliance Migration
Migrate from legacy registrations to single registration per Code in states that have notified rules. Move to single licence and single return mechanisms. Train HR team on new return formats and inspector cum facilitator framework.
Phase 6: Ongoing Monitoring
Monitor state level rule notifications. Adjust compliance state by state as rules become operational. Engage with industry associations for collective representations. Maintain documentation supporting all decisions for inspector audits.
What You Need to Know
You have a workforce. The four Codes will reshape how you compensate them, contract them, and account for them.
AMLEGALS advises Indian employers on Labour Code implementation: CTC restructuring, fixed-term employment contracts, gratuity reprovisioning, working hour policies, women in night shift compliance, and state by state migration. Speak with us at [email protected].
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Social Security Expansion: Gig Workers and the Unorganised Sector
The Code on Social Security extends provident fund, employees state insurance, gratuity, maternity benefit, and employee compensation to categories of workers who were previously outside the formal social security net.
Gig workers are persons performing work or participating in work arrangements that fall outside traditional employer employee relationships. App based delivery riders, ride hailing drivers, freelance content creators on platform marketplaces.
Platform workers are gig workers accessing organisations through an online platform that uses information technology to connect them with consumers or businesses.
Unorganised workers are home based workers, self employed workers, and wage workers in the unorganised sector. Approximately 38 crore Indians fall in this category.
The Code creates a framework for the central government to notify schemes specifically for gig workers, platform workers, and unorganised workers. The schemes will cover life and disability insurance, accident insurance, health and maternity benefits, old age pension, and creche facilities. Funding will come from a combination of government contributions and aggregator contributions.
Aggregator contributions. Section 114 of the Code authorises the central government to levy a contribution between 1% and 2% of annual turnover on aggregators (defined as digital intermediaries connecting workers with customers). The contribution funds social security schemes for gig and platform workers. Sectors covered include ride sharing services, food and grocery delivery services, logistics services, e-marketplaces, professional services platforms, healthcare platforms, and travel and hospitality platforms.
For platform companies the aggregator contribution materially impacts unit economics. For platform workers it provides social security access for the first time. The framework is operational pending notification of specific schemes. Employers operating platform business models in India must factor this into their financial planning.