How India's Labour Code Changes Are Reshaping Compliance For Global Capability Centers

In India, many global capability centers (GCCs) have been bracing up for labour codes over the past few years. Finally, the Ministry of Labour and Employment announced the final Central Rules under all four Labour Codes on 8 May 2026. With the prescribed norms now in effect, the priority has shifted from planning for change to ensuring compliance across payroll, employment contracts, and workforce governance. For GCCs running large headcounts in India under captive or IT/ITES structures, this is a payroll and contracts challenge that demands attention.

The Retrospective Trap Nobody Budgeted For

On 21 November 2025, the revised definition of wages under the Code on Wages and the Code on Social Security came into effect – the same date the four Codes themselves took effect.  These details are important, and they are more relevant than most GCCs initially realized.

• If any fixed-term contract signed before that date is still active, it now comes under a wage definition that did not exist when it was drafted.
• Gratuity computed under the old wage definition and the new one will not produce the same figure.
• For GCCs that considered gratuity a fixed, low-risk line, it’s important to revisit any fixed-term contract still in force from before that date.

The second structural shift concerns retrenchment. As per the previous regime, an establishment required prior permission from the government to retrench once it crossed 100 workers. Under the Industrial Relations framework, this threshold has moved to 300. A long-standing procedural constraint has finally been resolved. However, it also means that the compliance playbook based on the old 100-worker trigger is not outdated. It has to be redesigned from scratch.

Two Committees, Two Thresholds, One Common Mistake

GCCs frequently conflate two separate statutory bodies because they sound similar and both involve worker representation. In fact, they're distinct bodies, each triggered by a different threshold.

When an industrial establishment has 20 or more workers, a Grievance Redressal Committee becomes mandatory. It has a narrower and more operational scope, with:

• Individual employee grievances
• Capped at 10 members
• Equal representation from the employer and worker sides
• Women represented in proportion to their share of the workforce

Most mid-sized GCC delivery centers cross this threshold quickly and are expected to have this committee running well before headcount becomes a boardroom issue.

The Works Committee has a materially higher bar of 100 or more workers. It serves a broader purpose, promoting cooperation between employer and workforce beyond individual complaints. Membership can run up to 20, with worker representatives numbering at least as many as employer representatives.

A GCC that correctly set up its Grievance Redressal Committee at 20 workers can still be non-compliant on the Works Committee if headcount has since crossed 100 and the center failed to re-check the second threshold. Treating the two as a single obligation, satisfied once and forgotten, is the most common gap in practice. That’s why GCCs must work with professionals offering labour law and HR compliance advisory services in India to remain compliant and close these common gaps.

Getting the Effective Date and the Wage Math Right

A recurring error among GCCs restructuring payroll in 2026 is anchoring compliance to the date they made the change, rather than the date the law actually took effect. Liability under the revised wage definition runs from 21 November 2025, the implementation date of the Code, not from the time a center got around to adjusting its CTC structures. Any gap between those two dates is exposure that has already accrued, whether or not it has been recognized in the books.

The Ministry's FAQ, issued in March 2026, closed another point of genuine ambiguity. It stated that overtime allowance would be included when calculating whether allowances exceed 50% of an employee's total remuneration. Once allowances, including overtime, cross that mark, the excess gets added back into "wages" for computing statutory dues like provident fund and gratuity. GCCs running lean base salaries with heavy allowance and overtime components, common in shift-based delivery operations, are precisely the profile most likely to trip this threshold without realizing it.

What to Actually Do This Quarter

What GCCs need is a specific sequence of actions to remain compliant this quarter. Many centers are turning to specialized guidance on labour code compliance for IT/ITES capability centers in India to stay on track. Here are five priority actions for GCCs to remain compliant this quarter.

• Audit CTC structures line by line and calculate the monthly shortfall per employee where allowances, including overtime, exceed the 50% threshold. This gives you real gratuity and PF exposure per head, not an estimate.
• Recompute gratuity liability for every fixed-term employee whose contract predates 21 November 2025, using the revised wage definition, and reserve for the retrospective gap now.
• Map headcount against the 20-worker and 100-worker thresholds separately, and verify that the Grievance Redressal Committee and Works Committee are each constituted correctly. Compliance with one should never be assumed to satisfy the other.
• Appointment letters should be issued to every employee who has not formally received one, as mandated under the OSH Rules. This is one of the most common gaps inspectors flag.
• Standing orders and retrenchment procedures must be revisited against the new 300-worker threshold. This ensures that the internal playbook matches the current law.

Conclusion

The Labour Codes are now in force, and the final Central Rules have been notified. Any exposure relating to fixed-term gratuity and wage computation has been building since November 2025, whether or not it is reflected in current filings. GCCs that treat this as a one-time legal review rather than an ongoing labour compliance strategy for multinational captive centers in India tend to discover the gaps at the worst possible time, during an inspection or a statutory audit.

It's crucial for Global Capability Centers to get India labour law compliance right now, rather than retrofitting it later. It is also the safer position if regulators start asking questions about labour code compliance for IT/ITES capability centers in India over the coming year.

Xpansa works with GCCs on exactly this kind of structural review. With professional GCC compliance services, centers can keep entity-level filings aligned with what payroll and HR are actually doing on the ground. Consult our Xpansa experts for valuable advisory solutions and stay aligned with the Labour Codes as the compliance environment keeps evolving.

Aishwarya Shiva accelerates global business expansion into India through strategic partnerships and expert GCC advisory. Managing relationships across both B2B and B2C sectors, she helps international companies turn their growth plans into successful, scalable operations on the ground.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.