On 21 November 2025, the Government of India activated all four Labour Codes - replacing 29 labour laws that had accumulated over seven decades. For employers, this is not a gradual transition. It is a structural reset of how wages are defined, how social security is calculated, how industrial relations are governed, and how workplace safety is regulated.
The changes are live. Every salary credited since November 2025 is governed by the new wage definition. Every fixed-term employee who has completed one year is now eligible for gratuity. Every full-and-final settlement must be processed within 2 working days. And the penalties for non-compliance have been increased by 10-50 times compared to the old laws.
This guide provides a single consolidated overview of all four Labour Codes - what each Code covers, the key changes that affect employers, the penalty framework, the transition timeline, and a practical compliance checklist for action before the state rules are fully operational.
What Are the 4 Labour Codes and Why Do They Matter?
The 4 Labour Codes are four consolidated statutes enacted by the Indian Parliament to replace 29 fragmented Central labour laws with a unified, modern framework. They cover wages, social security, industrial relations, and workplace safety - the four pillars of employment regulation in India.
The consolidation was announced as part of the Aatmanirbhar Bharat initiative. The Code on Wages received Presidential assent on 8 August 2019, while the other three Codes received assent on 28 September 2020. All four were activated simultaneously on 21 November 2025 through a Ministry of Labour & Employment press release.
Employers using payroll processing and management services must align their payroll, HR policies, employment contracts, and compliance systems with the new Codes - while simultaneously complying with legacy State laws during the transition period where new State rules have not yet been notified.
Key Terms You Should Know
- Code on Wages, 2019: Replaces 4 laws (Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, Equal Remuneration Act). Introduces a uniform definition of "wages" with the 50% basic rule, universal minimum wages, and timely payment requirements.
- Code on Social Security, 2020: Replaces 9 laws (EPF Act, ESI Act, Gratuity Act, Maternity Benefit Act, and 5 others). Extends social security to gig/platform/unorganised workers. Introduces FTE gratuity after 1 year.
- Industrial Relations Code, 2020: Replaces 3 laws (Industrial Disputes Act, Trade Unions Act, Industrial Employment Standing Orders Act). Raises retrenchment threshold from 100 to 300 workers. Introduces fixed-term employment formally.
- Occupational Safety, Health & Working Conditions Code, 2020: Replaces 13 laws (Factories Act, Mines Act, Building Workers Act, and 10 others). Mandates annual health checkups for 40+ workers. Caps working hours at 8-12 hours/day, 48 hours/week.
- Inspector-cum-Facilitator: Replaces the old "Inspector" role. The new role emphasises facilitation and compliance guidance first, with enforcement action as a last resort. Inspections are now risk-based and digitally assigned through the SHRAM Suvidha Portal.
- Compounding of Offences: A new mechanism allowing first-time offenders to settle certain violations by paying a compounding fee - avoiding criminal prosecution. Not available for repeat offences or serious violations (e.g., withholding employee PF contributions).
Who Is Affected by the New Labour Codes?
The Labour Codes apply to every employer and every worker in India. The universal coverage under the Code on Wages eliminates the old "scheduled employment" limitation - minimum wages now apply to all sectors and all types of employment.
- Every private sector employer - startups, SMEs, and large enterprises across all industries
- IT companies, BPOs, and services firms - no longer exempt from certain old labour laws that applied only to manufacturing
- Fixed-term employees (FTEs) - now formally recognised with equal wages and benefits as permanent employees, including gratuity after 1 year
- Gig and platform workers - formally recognised for the first time under Indian labour law with social security coverage
- Contract workers - restrictions on using contract labour for core activities of business
- Inter-state migrant workers - specific protections including displacement allowance and return journey costs
- Women workers - expanded night shift permissions with prescribed safeguards; maternity benefits maintained
Employers holding PF registration and ESIC registration are directly affected by the new wage definition, which changes the base on which PF, ESI, gratuity, bonus, overtime, and leave encashment are calculated.
What Changed: The 4 Codes at a Glance
The following table summarises what each Code replaces, its key features, and the most important employer impact.
| Code | Laws Replaced | Key Changes | Top Employer Impact |
|---|---|---|---|
| Code on Wages 2019 | 4 - Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, Equal Remuneration Act | Uniform "wages" definition (50% basic rule), universal minimum wages, equal pay mandate, timely payment by 7th of month | Salary restructuring - basic + DA must be ≥50% of total remuneration; PF/gratuity/bonus calculated on higher base |
| Code on Social Security 2020 | 9 - EPF Act, ESI Act, Gratuity Act, Maternity Benefit Act, Building Workers Act, Unorganised Workers Act, and 3 others | FTE gratuity after 1 year, gig/platform worker social security, expanded ESI/PF coverage, mandatory appointment letters | Gratuity liability increase (25-50%); new provisioning for FTEs; gig worker social security contribution (1-2% of turnover) |
| Industrial Relations Code 2020 | 3 - Industrial Disputes Act, Trade Unions Act, Standing Orders Act | Retrenchment threshold raised from 100 to 300 workers; fixed-term employment recognised; reskilling fund; strikes require 60-day notice | Easier retrenchment for establishments under 300 workers; standing orders now apply to establishments with 300+ workers (up from 100) |
| OSH Code 2020 | 13 - Factories Act, Mines Act, Dock Workers Act, Building Workers Act, and 9 others | Annual health checkup for 40+ workers, working hours 8-12 hours/day, 48 hours/week, overtime at 2× wages, night shifts for women with safeguards, safety committees for 500+ workers | Mandatory health checkup cost; overtime calculation on new wage base; facility and safety audit requirements |
How to Prepare for the Labour Codes: Step-by-Step Compliance Roadmap
1. Audit current salary structures against the 50% wage definition.Map every employee's CTC into "wages" (basic + DA) and "excluded components." Identify employees where wages are below 50% of total remuneration. Employers using payroll compliance services can run this audit across the entire workforce and generate a restructuring report with the financial impact at each CTC level.
2. Recalculate all statutory deductions on the new wage base. PF (12% of wages), ESI (4% of gross for eligible employees), gratuity (15/26 × wages × years), bonus (8.33-20% of capped wages), overtime (2× daily wages), and leave encashment (wages ÷ 30 × days) - all use the new "wages" definition as the calculation base.
3. Identify all fixed-term employees and provision for 1-year gratuity. Under the Code on Social Security, FTEs are eligible for pro-rata gratuity after 1 year. Review your FTE headcount, estimate gratuity liability, and update actuarial valuations under Ind AS 19. This is a plan amendment requiring immediate P&L recognition as past service cost.
4. Issue mandatory appointment letters to all workers. The Codes require every worker to have a written appointment letter. Review existing contracts and issue letters to any workers who do not have one. The letter must include terms of employment, wages, and benefits.
5. Review standing orders and retrenchment policies. If your establishment has 300+ workers, standing orders are now mandatory. The retrenchment approval threshold has been raised from 100 to 300. Update your HR policies accordingly.
6. Set up annual health checkups for 40+ workers. Under the OSH Code, employers must provide free annual health checkups for all workers aged 40 and above. Budget for this and identify healthcare providers.
7. Update payroll systems and file revised returns. Configure payroll software with the new wage definition, recalculate all deductions, issue revised payslips, and file updated PF ECR, ESI challans, and TDS returns from the restructuring date.
Documents and Policies Employers Must Update
- Employment contracts and appointment letters - must comply with new worker classification and wage definition
- Salary structures and CTC breakup sheets - restructured to meet 50% basic rule
- Standing orders (for establishments with 300+ workers) - aligned with new model standing orders
- Leave policy - earned leave after 180 days of work per year (reduced from 240 days under old law)
- F&F settlement process - must complete within 2 working days of exit
- Health checkup policy - free annual checkup for workers aged 40+
- Grievance redressal mechanism - mandatory under Industrial Relations Code
- Payroll software configuration - new wage heads, deduction logic, and statutory formulas
- Actuarial valuation assumptions - updated for 1-year FTE gratuity and 50% wage base
- Safety committee charter (for 500+ worker establishments) - under OSH Code
29 Laws Replaced: Complete Mapping to the 4 Codes
The following table maps each of the 29 repealed laws to its replacement Code, helping employers understand which old compliance obligations have been subsumed and where to find the corresponding new provisions.
| Code | Number of Laws Replaced | Key Laws Replaced |
|---|---|---|
| Code on Wages 2019 | 4 | Minimum Wages Act 1948, Payment of Wages Act 1936, Payment of Bonus Act 1965, Equal Remuneration Act 1976 |
| Code on Social Security 2020 | 9 | EPF & MP Act 1952, ESI Act 1948, Payment of Gratuity Act 1972, Maternity Benefit Act 1961, Employees' Compensation Act 1923, Building & Other Construction Workers Act 1996, Unorganised Workers Act 2008, Cine Workers Act 1981, Employment Exchanges Act 1959 |
| Industrial Relations Code 2020 | 3 | Industrial Disputes Act 1947, Trade Unions Act 1926, Industrial Employment (Standing Orders) Act 1946 |
| OSH Code 2020 | 13 | Factories Act 1948, Mines Act 1952, Dock Workers Act 1986, Building & Other Construction Workers Act 1996, Plantations Labour Act 1951, Contract Labour Act 1970, Inter-State Migrant Workers Act 1979, Working Journalists Act 1955, Motor Transport Workers Act 1961, Sales Promotion Employees Act 1976, Beedi & Cigar Workers Act 1966, Cine Workers Act 1981, Journalists Act 1955 |
Note: State-level Shops and Establishments Acts are NOT subsumed by the Labour Codes and continue to operate independently. Employers must comply with both the Labour Codes and the applicable state Shops and Establishments Act until the state government issues a specific notification harmonising them.
Common Mistakes Employers Are Making During the Transition
Mistake 1: Waiting for state rules before restructuring salaries. The Central Codes are in force since 21 November 2025. The wage definition under Section 2(y) is operative. Penalties apply per employee, per violation, from the commencement date. Waiting for state rules is not a valid legal defence.
Mistake 2: Not provisioning for FTE gratuity under the 1-year rule. Many employers had zero gratuity liability for fixed-term/contract workers because the old 5-year rule made them ineligible. The 1-year rule creates immediate liability for all FTEs who have completed 12 months. Employers must update their gratuity calculation services to reflect the 1-year FTE eligibility and revised wage base in their March 2026 actuarial valuations.
Mistake 3: Ignoring the 2-day F&F settlement requirement. Under the Code on Wages, all salary dues must be settled within 2 working days of exit. The old practice of settling F&F in 30-90 days is no longer compliant. Payroll and HR systems must be configured for immediate processing.
Mistake 4: Treating legacy laws as the governing framework. During the transition, both old laws and new Codes may apply. Where the Code has been notified and its provisions are in force, the Code prevails. Employers cannot cherry-pick between old and new provisions based on which is more favourable.
Mistake 5: Not issuing mandatory appointment letters to all workers. The Codes require every worker to have a written appointment letter. Companies with workers who have been employed informally or without formal documentation face compliance risk during inspections.
Penalties Under the New Labour Codes vs Old Laws
The penalty framework has been fundamentally redesigned - higher fines, decriminalisation of minor offences, and compounding for first-time violations.
| Offence | Old Law Penalty | New Code Penalty |
|---|---|---|
| Paying below minimum wage | Rs 500 fine + 6 months imprisonment (Minimum Wages Act Section 22) | Rs 50,000 fine (first offence); Rs 1 lakh + 3 months imprisonment (repeat) (Code on Wages Section 54) + up to 10× compensation to worker (Section 45) |
| Non-payment of PF contribution | Section 14B - damages up to 100% of arrears + Section 14 - 3 years imprisonment | Similar provisions retained under Code on Social Security; enhanced penalty for withholding employee share |
| Failure to comply with OSH standards | Rs 1 lakh fine (Factories Act) | Up to Rs 5 lakh fine (OSH Code); Rs 2 lakh + 6 months imprisonment for hazardous process violations |
| Non-certification of standing orders | Rs 5,000 fine (Standing Orders Act) | Up to Rs 2 lakh fine (IR Code) |
| General non-compliance | Varied - Rs 500-5,000 range in most old laws | Rs 20,000-50,000 (first offence); escalating fines for repeat offences; compounding available for most first offences |
| Withholding employee PF/ESI contributions | Criminal prosecution - 1-3 years imprisonment | Criminal prosecution retained - minimum 1 year imprisonment; no compounding available |
The key design philosophy of the new penalty framework is: higher fines, less imprisonment for routine violations, but mandatory imprisonment for serious offences (especially withholding employee contributions). The compounding mechanism allows first-time offenders to settle by paying a fee - avoiding prosecution.
How the 4 Codes Connect with Each Other
The four Codes are not independent statutes - they share a common wage definition (Section 2(y) of the Code on Wages) that flows through all statutory calculations. Employers maintaining PF registration and ESIC registration must use this uniform wage definition for PF, ESI, gratuity, bonus, overtime, leave encashment, and minimum wage compliance.
The Code on Wages provides the foundational definition of "wages" that the other three Codes reference. The Code on Social Security uses this definition to calculate PF, ESI, and gratuity. The Industrial Relations Code uses it for retrenchment compensation, closure compensation, and worker entitlements. The OSH Code uses it for overtime pay calculation (2× wages for hours beyond the prescribed limit).
This interconnection means that getting the wage definition right at the payroll level automatically ensures compliance across all four Codes. Conversely, getting it wrong creates cascading non-compliance across PF, ESI, gratuity, bonus, overtime, and minimum wages - each with its own separate penalty framework. The total penalty exposure for a single payroll misconfiguration can be tens of lakhs for a mid-size employer.
Before and After: What Changed for Employers
| Area | Before (29 Laws) | After (4 Labour Codes) |
|---|---|---|
| Wage definition | Multiple definitions across different Acts | Single uniform definition - Section 2(y); basic + DA ≥50% of remuneration |
| Minimum wage coverage | Only scheduled employments | Universal - all sectors, all industries |
| Gratuity eligibility (FTE) | 5 years (same as permanent) | 1 year for fixed-term employees; 5 years for permanent |
| Gig/platform workers | Not recognised under labour law | Formally recognised; social security coverage via aggregator contributions |
| F&F settlement | No statutory deadline (typically 30-90 days) | 2 working days from exit |
| Retrenchment approval | Needed for 100+ workers | Needed for 300+ workers (threshold raised) |
| Registration | Separate registrations for each Act | Single registration through SHRAM Suvidha Portal (when operational) |
| Inspector role | Enforcement-first approach | Inspector-cum-Facilitator - guidance first, enforcement last |
| Penalties | Rs 500-5,000 range for most offences | Rs 20,000-5,00,000 range; 10× compensation to workers for wage violations |
| Standing orders | 100+ workers | 300+ workers |
| Health checkup | Not mandatory | Mandatory annual checkup for workers aged 40+ |
| Appointment letter | Not universally mandatory | Mandatory for all workers - no exceptions |
Key Takeaways
The 4 Labour Codes - Code on Wages 2019, Code on Social Security 2020, Industrial Relations Code 2020, and OSH Code 2020 - consolidate 29 Central labour laws into a single unified framework. All four became legally effective on 21 November 2025, with operational rollout aligned to 1 April 2026.
The uniform wage definition under Section 2(y) of the Code on Wages is the foundation - basic + DA must be at least 50% of total remuneration. This single change increases the calculation base for PF, ESI, gratuity, bonus, overtime, and leave encashment, raising employer costs by an estimated 15-25% of current statutory outflow.
Fixed-term employees are now eligible for pro-rata gratuity after 1 year (down from 5 years), gig and platform workers are recognised for social security, and every worker must receive a mandatory appointment letter - expanding employer obligations significantly.
Penalties have been increased by 10-50× compared to old laws, but imprisonment is reserved for serious offences. The compounding mechanism allows first-time offenders to settle without prosecution. However, withholding employee PF/ESI contributions carries mandatory imprisonment with no compounding option.
Employers are currently in a dual compliance environment - the Codes are in force but Central and State rules are still being finalised. This is not a reason to wait. The wage definition, FTE gratuity, and F&F settlement provisions are already operative and enforceable. Employers must act now.
Need Help with Labour Code Compliance?
The 4 Labour Codes represent the most significant overhaul of Indian employment law in over seven decades. The transition requires salary restructuring, policy updates, contract revisions, payroll reconfiguration, actuarial revaluations, and ongoing compliance monitoring across all four Codes - simultaneously.
Explore our payroll processing and management services for end-to-end Labour Code compliance - from salary audit and 50% wage restructuring to PF/ESI/gratuity recalculation, F&F settlement processing, and ongoing multi-state statutory compliance management.
For queries, reach out at +91 945 945 6700 or WhatsApp us directly.
