The four codes: a structural overhaul
India's labour law landscape has long been criticised as fragmented, outdated, and difficult to navigate. With 29 central labour laws — some dating back to the 1920s — compliance was a maze of overlapping regulations, conflicting definitions, and inconsistent state-level interpretations. The four new labour codes represent the most significant reform of Indian labour law in decades. The Code on Wages, 2019 consolidates four existing wage-related laws. The Industrial Relations Code, 2020 merges three laws governing trade unions, industrial disputes, and standing orders. The Social Security Code, 2020 subsumes nine laws covering provident fund, ESI, gratuity, and maternity benefits. The Occupational Safety, Health and Working Conditions Code, 2020 consolidates thirteen laws related to workplace safety and conditions. Together, these codes aim to simplify compliance, extend protections to a larger workforce, and modernise labour regulation for the contemporary economy.
For employers, the transition is significant. While the codes were passed by Parliament between 2019 and 2020, their implementation has been phased, with states needing to frame their own rules under the central codes. As of 2025, most major states have notified their rules, and companies need to align their HR policies, payroll systems, and employment contracts with the new framework. The changes are not cosmetic — they affect fundamental aspects of the employer-employee relationship including wage structures, working hours, contract labour, social security contributions, and termination procedures.
Code on Wages: the salary restructuring challenge
The most immediately impactful change for most employers is the wage definition under the Code on Wages. The new definition of "wages" requires that basic pay constitute at least 50% of an employee's total remuneration. This directly challenges the common industry practice of structuring salaries with a low basic pay and high allowances (HRA, special allowance, conveyance) to reduce provident fund and gratuity liability. Under the new code, if basic pay falls below 50% of total remuneration, the entire package gets reclassified for the purpose of calculating statutory contributions. This means PF contributions, gratuity calculations, and overtime pay computations will be based on a larger base amount. For many companies, this translates to a 15-30% increase in statutory contribution costs per employee.
HR teams need to model the financial impact and restructure compensation packages proactively. The key is to ensure that the new salary structure remains cost-neutral to the company where possible, or to phase in the increased costs. This involves recalculating CTC breakdowns, updating offer letter templates, revising payroll configurations, and communicating changes to existing employees. Using HR platforms that support flexible salary structuring and automatic compliance calculations — like the CTC calculator available on Workro's compliance hub — makes this transition significantly more manageable than doing it manually in spreadsheets.
Social Security Code: expanded coverage and gig workers
The Social Security Code introduces several forward-looking provisions. Most notably, it brings gig workers and platform workers under the social security umbrella for the first time. Companies operating in the gig economy — food delivery, ride-hailing, freelance marketplaces — will need to contribute to social security funds for their workers, even if those workers are not classified as traditional employees. The code also establishes a national Social Security Fund financed by contributions from aggregators and the central government. For traditional employers, the key changes include a unified registration process (replacing separate registrations under EPF, ESI, and other schemes), expanded ESI coverage to all establishments with ten or more employees (down from twenty in some states), and a simplified framework for gratuity that covers fixed-term employees proportionately.
Industrial Relations Code: hire and fire gets nuanced
The Industrial Relations Code modifies the threshold for government approval of layoffs and retrenchment. Under the old Industrial Disputes Act, establishments with 100 or more workers needed government permission to lay off or retrench workers. The new code raises this threshold to 300 workers, giving medium-sized companies more flexibility in workforce management. However, this does not mean unrestricted termination — the code still requires proper notice, retrenchment compensation (15 days' average pay for each completed year of service), and adherence to the "last in, first out" principle. The code also introduces a new concept of "fixed-term employment" with a clear legal framework, giving employers a legitimate alternative to contract labour for project-based work. Fixed-term employees are entitled to the same wages, hours, and social security benefits as permanent employees in equivalent roles, but the employment relationship ends on the agreed date without constituting retrenchment.
Practical compliance roadmap
Employers should approach compliance with the new labour codes as a structured project rather than a reactive scramble. Start by conducting a gap analysis between your current HR policies and the new code requirements — this is especially critical for wage restructuring and social security registration. Update your employment contracts and offer letter templates to reflect the new definitions and entitlements. Reconfigure your payroll system to handle the revised wage definition and contribution calculations. Train your HR and finance teams on the key changes and their operational implications. Finally, establish a monitoring process for state-level rule notifications, as implementation timelines vary across states. Companies using integrated recruitment and HR platforms benefit here because policy updates and compliance calculations can be pushed centrally rather than manually updated across disconnected systems. For recruitment specifically, ensure your offer letter generation and CTC calculation tools align with the new wage definition to avoid compliance issues from day one of a new hire's tenure.