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India's Labour Codes have been in a state of suspended animation for over four years –enacted, but not operational; effective on paper but not yet binding in practice. That limbo narrowed significantly in November 2025, when the Government of India formally notified all four Codes—the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code, bringing into effect the consolidated framework that subsumes 29 legacy labour laws with effect from 21 November 2025.
With this formal notification now behind us and fresh draft central rules out for consultation in the last week of December (links are provided with detailed analysis in subsequent paragraph), the shift from legislative intent to enforceable obligation has clearly begun. While the final rule notifications and state-level enactments are still largely forthcoming, the direction of travel is no longer ambiguous.
What makes this phase particularly important is that the Labour Codes do not merely amend compliance checklists; they rewire the assumptions on which wage structures, workforce models, exit settlements, contractor governance, and safety management have historically been built. Once the Rules are notified, many of these choices will harden into statutory timelines and thresholds, leaving limited room for discretionary adjustment. The real question for organisations, therefore, is not when the Codes will come into force, but whether existing systems and operating models are capable of absorbing them without friction.
This note looks at the Labour Codes from that practical lens. It briefly revisits the intent and structure of the Codes, highlights the operational pressure points that organisations are likely to confront over the next 12 to 24 months, and then examines what is new and materially different in the latest draft central rules. The objective is to help organisations with the preparation – understanding where decisions will be forced, and where early alignment can significantly reduce execution risk once the transition formally begins.
Background
Difficulty of navigating through overlapping laws and varied State-level interpretations of such laws gets removed through four national codes governing wages, social security, industrial relations, and occupational safety and working conditions. While Central and State Rules will still determine operational specifics, compliances will now be anchored to a common legislative backbone.
However, state-specific labour laws, such as Shops and Establishments Acts, Labour Welfare Fund Acts, will continue to apply. The constitutional division of powers under Schedule VII also remains intact.
The timing of actual operationalisation of the Codes is still not clear, but the real question for the companies is not 'when the Rules will be notified', it is 'whether current workforce structures, wage models, and exit processes are ready for the transition'.
Key Focus Areas under the Codes
While there are quite a few nuances brought about by the Codes, what matters is recognising where decisions will be forced over the next 12–24 months.
Redefined concept of 'wages' under the Code:
The Code on Wages introduces a single, uniform definition of "wages" across labour laws. In substance, this curtails the historical practice of structuring compensation heavily through allowances to minimise exposure to statutory contributions.
Allowances such as HRA, bonus, PF contribution, and conveyance cannot exceed 50% of total remuneration. Any excess is deemed wages for statutory computation. This does not automatically translate into an immediate cost escalation, but it forces a redesign conversation around wage structures.
The Ministry of Labour's clarification on EPF contributions provides some relief for organisations adhering to the ₹15,000 wage ceiling. However, the downstream impact, particularly on gratuity calculations and insured gratuity schemes, requires careful reassessment. HR and Finance must jointly own this redesign; it is no longer an HR-only subject.
Exit Settlements under Wage Code:
One of the most operationally disruptive changes under the Code on Wages is the 2-working-day timeline for wage settlement across all exit scenarios—resignation, retrenchment, termination, or dismissal.
Gratuity continues to follow the 30-day rule, but wages must be cleared within 48 working hours. When combined with retrenchment compensation and leave encashment obligations, this significantly compresses settlement timelines—especially in batch exits common to factories, projects, and shutdown operations.
This is not a legal ambiguity. It is a systems and governance challenge. Payroll, HR, shared services, and finance teams must collectively ask:
Can we process, approve, fund, and release settlements at
scale within 48 hours?
If the answer is no, processes must be redesigned to ensure
compliance.
'Fixed-Term Employment' recognised:
Fixed-term employment is now explicitly recognised and regulated who are now entitled to the same wages and benefits as permanent employees performing similar work, including gratuity eligibility after one year of service.
This framework aligns well with project-based deployments, shutdown teams, and rotational assignments. However, it shifts the question from 'can we use fixed-term employment' to, 'where can they be employed to make commercial sense'?
Cost planning must factor in statutory benefits upfront, linking workforce models directly to project profitability and site-level economics.
Wider Coverage under Social Security:
The Code on Social Security broadens its coverage by expanding the definition of "employee" to include direct and indirect employment, hired through express or implied contracts, and by including virtually people hired for all categories of work.
Contract labour, inter-state migrant workers, and fixed-term employees are now within the social security coverage. Thresholds for EPF and ESIC applicability remain unchanged, but wage ceilings for coverage are removed, expanding benefit eligibility.
For contractor-heavy operations, this marks a shift from binding contractors through contract drafting to active contractor governance. Gaps in registration or contribution can now translate into direct liability for the principal employer.
Transition provisions maintain that the existing EPF and ESIC schemes for 1-year post-notification till 21st November 2026 for ensuring continuity. However, organisations must use this window to prepare for full alignment.
Industrial Relations restructured:
The Industrial Relations Code replaces the concept of "workman" with "worker" and introduces a broader definition of "employee," though most substantive protections apply only to "workers" as defined under the Code.
Thresholds for Standing Orders have increased to 300 workers from 100, offering relaxation to industries having less than 300 workers. At the same time, the requirement for mandatory consultation with trade unions before submitting Standing Orders marks a significant procedural shift. Compliance now demands demonstrable consultation, not token engagement through intimation to trade unions.
The introduction of the 'Worker Re-skilling Fund' reflects a policy shift. Under the Code restructuring is permissible, but worker transition must be supported. States like Karnataka and Gujarat have already operationalised this obligation of contributing an amount equivalent to 15 days' last drawn wages for every retrenched worker to the Worker Re-skilling Fund, making retrenchment cost planning more complex, but forward-looking.
Grievance Redressal Committees, now mandatory for establishments with 20 or more workers, have expanded composition and equal workers and employer representation requirements. When structured well, they function as risk-management tools, reducing escalation and litigation exposure.
More stringent regulation of Occupational Safety, Health and Working Conditions:
The OSH Code consolidates multiple safety laws while tightening timelines and documentation.
Leave encashment on exit must now be paid within 2 working days, irrespective of whether exit is due to resignation or termination, impacting payroll cycles directly.
Shift design, overtime consent requirement, roster change controls, and contractor fatigue management become more complex, particularly for 24×7 operations. The Code also enables greater flexibility in employing women during night shifts, subject to safety and consent requirements.
Registration and licensing consolidation simplifies one-time compliances but comes with transition obligations.
Importantly, welfare responsibilities for contract labour and inter-state migrant workers now sit squarely with the principal employer, requiring infrastructure, budget, and governance alignment.
What's New under the New Draft Central Rules (2025)
Social Security (Central) Rules, 2025
The Draft Rules contain provision for complete transition to the Social Security Code by repealing the Employee's Compensation Rules, 1924. It mandates centralised electronic registration for unregistered establishments through the Shram Suvidha Portal, along with on-site display of registration certificates.
Employment information and monitoring obligations are now applicable to private establishments employing 50 or more employees, with quarterly filings replaced by a single annual return. ESIC compliance has been tightened through mandatory registration of employees on or before the date of joining, extension of temporary insurance number validity to 30 days, and retention of existing contribution rates.
Gratuity eligibility for fixed-term employees has been clarified as payable after 1 year of service. Periods exceeding 6 months must be rounded off as a full year while computing gratuity pay out. The exclusions from "wages" for gratuity computation has been given clarity by excluding performance-linked pay, non-remunerative incentives, reimbursements, stock options or cash equivalents, crèche allowance, and meal vouchers.
Maternity benefit certification has been expanded to include ASHAs and qualified ANMs, apart from registered doctors. Creche applicability threshold remains at 50 employees, supported by detailed infrastructure, location, and safety standards. Prescribed registers must be maintained for 5 years, and a unified annual return for gratuity and maternity benefits is to be filed by 1 February.
Occupational Safety, Health and Working Conditions (Central) Rules, 2025
It mandates annual medical examinations for employees aged 40 years and above. Power to regulate working hours, intervals, and spread over have been given to Central Government. Leave encashment timelines for working journalist or sales promotion employee on exit have been standardised, irrespective of the mode of separation.
Multiple registrations and licences have been consolidated into a single framework, supported by transition timelines. Electronic maintenance of registers and advance issuance of wage slips have been mandated, alongside unified annual returns for employers and half-yearly returns for contractors.
Contract labour governance has been strengthened through mandatory grievance redressal committees along with minimum annual increment of 2% for regularly deployed contract workers.
Industrial Relations (Central) Rules, 2025
Proportionate representation of women workers on Works Committees has been mandated, with reporting of committee constitution and functioning through unified annual returns. Trade union functions and consultation processes have been formalised through a dedicated chapter in the draft rules.
Retrenchment procedures have been tightened, requiring regulatory intimation within 3 days where notice pay is provided in lieu of notice. Re-employment obligations have been clarified through mandatory preparation and display of seniority lists prior to retrenchment.
Code on Wages (Central) Rules, 2025
The statutory definition of "family" is expanded, and the term "worker" is uniformly replaced with "employee". Greater flexibility has been introduced for working hours and spread over through government orders, alongside structured procedures for fines and deductions requiring prior intimation and authority approval.
Mandatory employee nomination for settlement of dues has been introduced, supported by standardised recordkeeping requirements and unified annual return filing aligned with the OSH framework.
Conclusion
For organisations, this is not a period for passive monitoring. Once notified, non-alignment will translate quickly into compliance risk. Therefore, the present consultation window should be treated as a strategic preparation phase. Employers who proactively recalibrate wage structures, streamline exit and payroll systems, strengthen contractor governance, embed safety and reporting frameworks will be far better positioned to absorb the Labour Codes with minimal friction.
To help your leadership and functional teams adapt to the labour codes, we are pleased to offer a focused online training programme for your organisation. Rather than a theoretical legal lecture, we will conduct a two-hour, decision-oriented session, which will be designed for HR, Operations, Finance, and Senior Leadership. We will move beyond the text of the law to discuss the practical impact on workforce strategy, financial planning, and contractor management.
The programme covers the "big picture" impact on your organisation, including the specific financial implications of new wage structures and the operational requirements of managing fixed-term and contract staff. We will also provide a clear 6-to-12-month action plan to ensure your systems are ready for the transition.
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.
