India’s New Labour Codes: What Changed in 2026

India just overhauled its entire employment law framework. Twenty-nine separate labour laws, some dating back to the 1920s, have been consolidated into four codes: 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).

The codes were notified on 21 November 2025 by the Ministry of Labour and Employment. Draft Central Rules were published on 30 December 2025, with stakeholder consultation periods closing in January and February 2026. Final rules are expected to be notified by 1 April 2026, at which point full enforcement begins. However, because India’s labour regulation is split between the central government and state governments, implementation timelines will vary by state. Some states have already notified final rules. Others are still in draft.

For international employers hiring in India, whether through a local entity or an Employer of Record, the changes are substantial. Salary structures, statutory contributions, gratuity calculations, overtime payments, exit settlements, and social security coverage for gig workers have all shifted. This is not a marginal update. It is the most significant change to Indian employment regulation since independence.

The Code on Wages (2019) consolidates the Payment of Wages Act 1936, the Minimum Wages Act 1948, the Payment of Bonus Act 1965, and the Equal Remuneration Act 1976. It introduces a universal definition of “wages” and establishes a national floor wage that all states must meet or exceed.

The Industrial Relations Code (2020) merges the Trade Unions Act 1926, the Industrial Employment (Standing Orders) Act 1946, and the Industrial Disputes Act 1947. It formalises fixed-term employment with full benefit parity and restructures the dispute resolution framework.

The Code on Social Security (2020) brings together the EPF and Miscellaneous Provisions Act 1952, the ESI Act 1948, the Payment of Gratuity Act 1972, the Maternity Benefit Act 1961, and five other social security laws. Critically, it extends social security coverage to gig workers, platform workers, and the unorganised sector for the first time.

The Occupational Safety, Health and Working Conditions Code (2020) consolidates 13 laws including the Factories Act 1948, the Contract Labour Act 1970, and the Building and Other Construction Workers Act 1996. It broadens the definition of “establishment” and introduces mandatory safety committees for larger employers.

The single most impactful change for employers is the new universal definition of wages. Under the Code on Wages, “wages” now means basic pay plus dearness allowance plus retaining allowance. These components must constitute at least 50% of total remuneration (CTC). If allowances exceed 50%, the excess is automatically added back to the wage base for all statutory calculations.

This matters because Indian employers have historically kept basic pay artificially low (often 30 to 40% of CTC) to minimise contributions to the Provident Fund (12% of basic from both employer and employee), gratuity (calculated on basic pay at exit), ESI (where applicable), and statutory bonus. The new rule eliminates this optimisation. When basic pay rises to 50% of CTC, employer PF contributions increase proportionally, gratuity liabilities increase at exit, and employees see slightly lower take-home pay but significantly higher retirement savings.

For a typical employee earning INR 10,00,000 CTC annually, the shift from a 35% basic structure to a 50% basic structure can increase annual employer statutory costs by 5 to 15%, depending on how aggressively the previous structure was optimised. Employers must audit every existing salary structure and restructure before enforcement begins.

For the first time in Indian law, gig workers and platform workers are formally recognised and covered. The Code on Social Security creates a framework for life insurance, disability coverage, health benefits, maternity support, and retirement/old-age protection for workers engaged through digital platforms.

Aggregators (companies like Uber, Zomato, Swiggy, and Urban Company) may be required to contribute 1 to 2% of their annual turnover toward a Social Security Fund for these workers, capped at 5% of the total payments made to gig and platform workers. A centralised registration portal will track coverage.

This is a structural change. India has roughly 7.7 million gig workers (2020-21 data), projected to reach 23.5 million by 2030. For international companies hiring Indian freelancers or using platform-based models, the distinction between “contractor” and “gig worker” now carries statutory cost implications that did not exist before.

Under the old Gratuity Act, employees became eligible for gratuity after five continuous years of service. Under the new codes, fixed-term employees are entitled to pro-rata gratuity after just one year of service. This is a significant change for companies using fixed-term contracts, project-based hiring, or EOR arrangements where employee tenure often falls between one and three years.

The gratuity formula itself remains unchanged (15 days of wages for every completed year of service), but the wage base on which it is calculated is now higher due to the 50% rule. The combined effect of lower eligibility threshold and higher wage base increases gratuity exposure materially.

The maximum working week remains 48 hours. However, the codes introduce flexibility in how those hours are distributed. Employers can now offer a four-day workweek with 12-hour shifts (subject to employee consent), provided the 48-hour weekly cap is maintained. Overtime is payable at double the regular wage rate for any hours exceeding the daily or weekly limit.

Employers must settle all wages within two working days of an employee’s exit, whether through resignation, termination, or retrenchment. This 48-hour full-and-final settlement rule replaces the previous informal practice of processing final payments in the next payroll cycle (often 30 to 45 days later). Compliance with this timeline requires automated payroll systems capable of real-time leave encashment, notice period adjustment, and statutory dues calculation.

Contract labour thresholds have been raised from 20 to 50 workers, reducing the compliance burden on smaller operations. Independent contractors are now restricted from performing “core business activities” of the hiring company, with defined exceptions. Establishments with 500 or more workers must form safety committees with joint employer-worker representation. Women can now work night shifts across all sectors with adequate safety provisions. Factory thresholds have increased from 10 to 20 workers (with power) and 20 to 40 workers (without power). First-time offences for many violations are now subject to monetary fines rather than imprisonment, shifting from a punitive to a compliance-first enforcement model. Commuting accidents between home and workplace are now classified as employment-related injuries eligible for compensation.

If you are hiring through an Employer of Record in India, the EOR is responsible for restructuring salary to comply with the 50% wage rule, recalculating PF and gratuity contributions on the new wage base, implementing the 48-hour full-and-final settlement process, applying state-specific rules (which may differ from central rules), and registering any gig or platform workers on the centralised social security portal if applicable.

The transition period between November 2025 and April 2026 is when EOR providers should be updating payroll systems, contract templates, and compliance workflows. If your EOR has not proactively communicated these changes to you, that is a red flag. Ask specifically about their 50% wage restructuring timeline, gratuity provisioning for fixed-term hires, and full-and-final settlement automation.

For a ranked comparison of providers operating in India, see our Best Employer of Record in India guide.