The Government of India has consolidated 29 central labour laws into 4 simplified Codes. After years of phased rollout, the implementation is now accelerating across states through 2026. This is the largest labour reform India has seen in 50 years — and it will affect every employer, from a 10-person startup to a 1,000-person GCC.
Most business leaders I speak with know "something is changing" but haven't mapped the actual impact on their payroll, compliance, and employment contracts. This post is a quick primer on what's coming and what to act on.
The four new Codes
- Code on Wages, 2019 — minimum wage, payment of wages, equal remuneration, bonus.
- Industrial Relations Code, 2020 — trade unions, industrial disputes, standing orders, conditions of employment.
- Code on Social Security, 2020 — Provident Fund, ESI, gratuity, maternity benefit, and — for the first time — gig and platform workers.
- Occupational Safety, Health and Working Conditions Code, 2020 — factories, contract labour, inter-state migrant workers, plantations, mines.
Together, these replace acts your HR team has been complying with separately for decades — the Factories Act, Industrial Disputes Act, Payment of Wages Act, Minimum Wages Act, EPF Act, ESI Act, and many more.
Six changes that will affect your business directly
1. The new "wages" definition will reshape your payroll math
This is the single biggest impact. The Codes define "wages" as basic pay + dearness allowance + retaining allowance. Critically, all excluded components (HRA, conveyance, overtime, bonuses, statutory benefits) cannot exceed 50% of total remuneration.
For most Indian companies today, basic salary is 30–40% of CTC and the rest is allowances. That structure breaks under the new Codes. Companies will need to restructure salary packages so basic pay is at least 50% — which automatically raises PF, gratuity, and leave encashment contributions.
2. Single registration, single license
Today an employer running a factory, office, and warehouse needs separate licenses under Factories Act, Shops and Establishments Act, Contract Labour Act, and others. The new Codes collapse these into a single registration on a unified portal. Compliance reporting also moves to a single window. This is the biggest administrative win in the reform.
3. Workforce flexibility — the 300-worker threshold
Previously, establishments with more than 100 workers needed government approval for layoffs, retrenchment, or closure. The Industrial Relations Code raises this threshold to 300 workers. This gives growing companies operational flexibility without bureaucratic delay — though the change has been controversial.
4. Gig and platform workers get social security
For the first time in Indian law, the Code on Social Security recognizes gig workers and platform workers as a distinct class. Aggregators (companies like Uber, Swiggy, Urban Company) will need to contribute 1–2% of turnover (capped at 5% of payments made to gig workers) to a social security fund covering health, life, disability, and old-age protection.
If your business model uses gig labour at scale, this is a new line item.
5. The 4-day work week is now possible
The Codes allow the standard 48-hour work week to be compressed into 4 days (with a maximum 12 hours per day). State governments need to approve this for your industry. Several IT and services firms are already exploring this for productivity-led teams.
6. Fixed-term employment is legal nationwide
Fixed-term workers now get the same statutory benefits as permanent employees — including pro-rata gratuity after just 1 year of service (down from 5 years for permanent staff). This makes fixed-term contracts a legitimate hiring lever for project-based, seasonal, or capacity-led work — without the legacy stigma around contract labour.
What this means if you're an SME in India
The compliance burden has been simplified, but the cost structure has been recalibrated. Most SMEs are not ready for the wage redefinition impact. Critical actions in the next 90 days:
- Audit current CTC structures for "wages" compliance — specifically whether basic + DA is ≥ 50%
- Recalculate PF, gratuity, and leave encashment provisions under the new definition
- Update employment contract templates — especially for fixed-term and contract employees
- Register on the new single-portal system as your state notifies it
- Train your payroll team or vendor on the new rules
What this means if you're a global firm setting up in India
The simplification is a welcome change. Setting up India operations is now operationally cleaner — one registration, one license, one portal. But three things to watch:
- The new cost structure means India is marginally more expensive than 2024 estimates. Budget accordingly.
- Compliance is centralized but still complex for non-residents who don't have a local team.
- Many states are still notifying their implementation timelines. Working with a local operating partner makes the rollout predictable.
The bottom line
This is the largest labour reform in 50 years. Companies that adapt early get the operational advantage — cleaner contracts, predictable costs, and a head start on the new compliance model. Companies that wait will scramble when state notifications hit and find themselves restructuring payroll under pressure.
At 91 AT WORK, we've been preparing clients for this transition since the Codes were enacted. If you're unsure how the new Codes affect your team — whether you have 10 employees or 1,000 — we can map the impact in a 30-minute call.