Every year, thousands of Indian employers face penalties ranging from ₹50,000 to ₹10 lakh - not because they intended to break the law, but because they failed to keep up with changes in labour regulations. With India's four new Labour Codes replacing 29 older laws, the compliance landscape has shifted dramatically. If your business still operates under the old framework, you are exposed to penalties, prosecution, and employee disputes that could have been avoided.

This guide breaks down exactly what changed under the new Labour Codes, what employers must do differently, and how to stay compliant without hiring an army of lawyers.

What Are the Four New Labour Codes?

The Indian Parliament passed four Labour Codes between 2019 and 2020 to consolidate and simplify 29 existing central labour laws into four comprehensive codes:

  1. Code on Wages, 2019 - Replaces the Payment of Wages Act 1936, Minimum Wages Act 1948, Payment of Bonus Act 1965, and Equal Remuneration Act 1976
  2. Code on Social Security, 2020 - Replaces the EPF Act 1952, ESI Act 1948, Maternity Benefit Act 1961, Payment of Gratuity Act 1972, and others (9 laws total)
  3. Industrial Relations Code, 2020 - Replaces the Industrial Disputes Act 1947, Trade Unions Act 1926, and Industrial Employment (Standing Orders) Act 1946
  4. Occupational Safety, Health and Working Conditions Code, 2020 - Replaces the Factories Act 1948, Mines Act 1952, Contract Labour Act 1970, and others (13 laws total)

The central government notified the rules in 2021, but actual enforcement depends on state governments notifying their own rules. As of mid-2026, most major states - including Maharashtra, Karnataka, Tamil Nadu, Gujarat, Uttar Pradesh, and Rajasthan - have either notified or published draft rules under these codes.

The critical point for employers: Even in states where formal notification is pending, labour departments are already using the new codes as reference during inspections. Waiting for "official" implementation is a risky strategy.

How Your Salary Structure Changes Under the Code on Wages

This is the single biggest change that affects every employer in India, regardless of size or sector.

The 50% Basic Wage Rule

Under Section 2(y) of the Code on Wages, 2019, "wages" are defined to include basic pay, dearness allowance, and retaining allowance. Crucially, allowances (HRA, conveyance, etc.) that exceed 50% of total remuneration are treated as wages.

What this means in practice: If an employee's CTC is ₹50,000 per month, the basic wages component must be at least ₹25,000 (50% of total). Many Indian companies currently structure salaries with basic at 30-40% of CTC. This must change.

The Ripple Effect on Employer Costs

When basic wages increase, every statutory contribution tied to basic wages goes up:

Example: A company with 100 employees, each on ₹6 lakh CTC, restructuring basic from 35% to 50% could see annual PF costs increase by ₹10-12 lakh. This is not optional - it is a statutory requirement.

What Employers Must Do Now

Standing Orders and Fixed-Term Employment: What the Industrial Relations Code Changes

Standing Orders Now Apply to Smaller Establishments

Under the old Industrial Employment (Standing Orders) Act, 1946, only establishments with 100+ workers needed certified standing orders. The Industrial Relations Code, 2020 (Section 30) lowers this threshold to establishments with 300+ workers for some provisions, but importantly introduces model standing orders that apply by default to all industrial establishments.

If you have not adopted standing orders specific to your organisation, the model standing orders under Schedule 1 of the Industrial Relations Code apply automatically. These cover:

Fixed-Term Employment Gets Legal Backing

Section 2(o) of the Industrial Relations Code formally recognises fixed-term employment. This is significant because:

Penalty for non-compliance: Failure to comply with standing orders provisions can attract a fine up to ₹1 lakh under Section 89 of the Industrial Relations Code. Repeated offences can result in imprisonment up to 6 months.

Retrenchment and Closure Thresholds

Previously, establishments with 100+ workers needed government permission for layoffs, retrenchment, or closure under Section 25-O of the Industrial Disputes Act. The Industrial Relations Code raises this threshold to 300 workers (Section 77).

This means companies with 100-299 workers can now retrench without prior government approval, though they must still:

Social Security for Gig Workers, Platform Workers, and the Unorganised Sector

Expanded Coverage Under the Social Security Code

The Code on Social Security, 2020 (Sections 113-114) creates a framework for extending social security to:

What This Means for Platform Companies

Under Section 114, the central government can frame schemes for gig and platform workers covering:

Funding mechanism (Section 114(3)): Aggregators (platforms with an annual turnover of ₹100 crore or more in the preceding financial year) must contribute 1-2% of annual turnover toward the social security fund. The exact percentage will be notified by the central government.

Registration requirement: Every aggregator must register with the relevant authorities and maintain a database of gig and platform workers. Failure to register attracts a penalty of ₹1 lakh under Section 135.

For Traditional Employers

The ESI threshold remains at ₹21,000/month gross wages, and the EPF threshold at 20 employees for mandatory coverage. However, the Social Security Code expands the definition of "establishment" and "employee" which could bring more businesses under the net.

Specifically, Section 1(5) allows the central government to extend EPF and ESI benefits to establishments with fewer than the threshold number of employees through notification. Keep an eye on gazette notifications in your state.

Occupational Safety and Working Conditions: The Combined Code

Who Is Covered

The Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code) applies to:

Key Compliance Requirements

Registration (Section 3): Every establishment covered by the OSH Code must register with the appropriate authority. This is a single registration replacing multiple registrations under older laws (factory licence, shops and establishments registration, contract labour licence, etc.).

Appointment letters mandatory (Section 6): Every employer must issue an appointment letter to every employee. This was not universally required under older laws. Penalty for non-compliance: up to ₹50,000.

Annual health check-ups (Section 6): Employers must provide free annual health check-ups for employees above a prescribed age (likely 45 years, based on draft rules).

Working hours (Section 25):

Inter-state migrant workers (Sections 59-62):

Penalty Structure Under OSH Code

The OSH Code has a graded penalty structure:

Offence | First Offence | Repeat Offence

General contravention (Section 95) | Up to ₹2 lakh | Up to ₹5 lakh + imprisonment up to 6 months

Causing death of an employee (Section 96) | Imprisonment up to 2 years + fine up to ₹5 lakh | Imprisonment up to 3 years + fine up to ₹10 lakh

Obstructing inspector (Section 97) | Fine up to ₹2 lakh | Imprisonment up to 6 months + fine

Not issuing appointment letter (Section 6 read with 95) | Up to ₹50,000 | Up to ₹2 lakh

Practical Compliance Checklist for Employers

Use this checklist to audit your compliance status under the new Labour Codes:

Salary and Wages:

Employment Terms:

Social Security:

Safety and Working Conditions:

Documentation:

Frequently Asked Questions

Q: Are the new Labour Codes already in effect?

A: The four Labour Codes were passed by Parliament between 2019-2020 and received Presidential assent. However, they require both central and state rules to be notified before enforcement. As of June 2026, most major states have notified or published draft rules. Even before formal enforcement, labour authorities reference the new codes during inspections and dispute resolution. Prepare now rather than waiting for a gazette notification.

Q: Will my employees' take-home salary decrease under the new wage definition?

A: If you restructure salaries to meet the 50% basic wage requirement without increasing CTC, yes - the take-home will drop because a higher portion goes toward PF and other deductions. Many employers are choosing to absorb part of the increased cost by slightly raising CTC. Communicate the change clearly to avoid employee dissatisfaction.

Q: Do the new codes apply to startups and small businesses?

A: Yes, with varying thresholds. The Code on Wages applies to ALL establishments. EPF applies to establishments with 20+ employees. ESI applies to establishments with 10+ employees in notified areas. The OSH Code applies to establishments with 10+ workers. Even if you are below these thresholds, the Code on Wages (minimum wages, timely payment, equal remuneration) applies to you.

Q: What happens to existing employment contracts?

A: Existing contracts continue but must be aligned with the new codes once they are enforced in your state. Any provision in an existing contract that is less favourable than the code provisions will be overridden by the code. Use the transition period to update contracts proactively.

Q: How does the fixed-term employment provision affect contract staffing?

A: Fixed-term employment under the Industrial Relations Code is different from contract labour under the Contract Labour Act. A fixed-term employee works directly for the employer (not through a contractor) for a specified duration. They get the same wages and pro-rata benefits as permanent staff. This gives employers flexibility to hire for projects without the complexities of the contract labour framework.

Q: Can I still hire through contractors?

A: Yes. The OSH Code retains provisions for contract labour with updated thresholds and conditions. However, the principal employer remains responsible for ensuring contractors comply with wage and safety requirements. If a contractor fails to pay wages on time, the principal employer must pay and recover from the contractor (Section 22, OSH Code).

Q: What is the Shram Suvidha Portal and do I need to use it?

A: The Shram Suvidha Portal (shramsuvidha.gov.in) is the central government's unified portal for labour law compliance. It provides a single Labour Identification Number (LIN) for each establishment and enables electronic filing of returns, consolidated inspections, and transparency. Registration is already mandatory for establishments covered under central labour laws. Under the new codes, this portal is expected to become the primary compliance interface.

Q: Are there any benefits for employers under the new codes?

A: Yes. The codes simplify compliance by reducing 29 laws to 4, introduce a single registration and single return filing system, raise the retrenchment threshold from 100 to 300 workers, formally recognise fixed-term employment, and allow women to work night shifts in all sectors. The intent is to reduce compliance burden while maintaining worker protection. However, the wage restructuring requirement will increase costs for most employers.

What You Should Do Right Now

The transition to the new Labour Codes is not a future event - it is happening now. States are notifying rules, labour departments are referencing the codes, and courts are beginning to interpret them.

Here is your three-step action plan:

  1. Audit - Run a complete compliance audit against the checklist above. Identify gaps between your current practices and the new code requirements. Focus on salary structure, appointment letters, and standing orders first.
  2. Budget - Calculate the financial impact of the wage restructuring. For most companies, expect an 8-15% increase in statutory labour costs. Build this into your FY27 budget.
  3. Implement - Update salary structures, issue missing appointment letters, revise HR policies, and register on relevant portals. Do not wait for your state to formally notify - the compliance gap can be used against you in any dispute.

If keeping track of multiple regulatory changes across central and state governments feels overwhelming, that is exactly the problem Compliance Radar solves. Visit complianceradar.in to monitor regulatory changes, track your compliance posture, and get alerts before deadlines hit - so you spend time running your business, not chasing gazette notifications.