Labour Codes for Employers: A Compliance Checklist

India’s four Labour Codes came into force on 21 November 2025. According to the Press Information Bureau, they replace 29 central labour laws: the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020. For labour codes for employers, the practical problem is that many appointment letters, salary structures, standing orders, HR policies and exit processes in use today were drafted for the old statutes. This article sets out the changes that most often require documents to be redrafted, notes where the rules stand at the central level and in Maharashtra, and ends with a working checklist.

Where the Codes and rules stand

The Codes themselves have been in force since 21 November 2025. The detail sits in rules made by the appropriate Government. The Ministry of Labour and Employment notified the central rules under all four Codes on 8 May 2026: the Code on Wages (Central) Rules, 2026, the Social Security (Central) Rules, 2026, the Industrial Relations (Central) Rules, 2026 and the Occupational Safety, Health and Working Conditions (Central) Rules, 2026. These apply where the Central Government is the appropriate Government for the establishment.

Maharashtra published draft rules under the Codes in the State Gazette on 28 April 2026 and invited objections and suggestions within 45 days. The draft Industrial Relations rules, for example, propose to repeal the Industrial Disputes (Maharashtra) Rules, 1957, the Maharashtra Industrial Employment (Standing Orders) Rules, 1959 and the Maharashtra Trade Union Regulations, 1927. As of the latest official update available when this article was prepared, Maharashtra’s rules remained in draft. Employers should check the Labour Department’s publications and the Gazette for the current position before relying on any State-level form, timeline or procedure.

The new definition of wages and the 50% rule

The single change with the widest financial effect is the definition of wages in Section 2(y) of the Code on Wages, 2019. The Code on Social Security, 2020 uses the same definition in Section 2(88).

Wages include basic pay, dearness allowance and retaining allowance, if any. They exclude a list of items, including:

• statutory bonus that does not form part of the remuneration under the terms of employment;
• the value of house accommodation and certain amenities;
• employer contributions to pension or provident fund;
• conveyance allowance and travel concessions;
• house rent allowance;
• overtime allowance and commission;
• gratuity, retrenchment compensation and retirement benefits payable on termination.

The first proviso is the 50% rule. If the payments falling within the excluded categories in clauses (a) to (i) exceed one-half of all remuneration, or such other percentage as the Central Government notifies, the excess is deemed to be remuneration and is added back into wages.

Why it matters

Contributions and benefits calculated on wages, such as gratuity, can rise when a salary structure is heavily weighted towards allowances. Employers should model each grade’s salary structure against the 50% rule and decide, with the cost implications in view, whether to restructure.

Fixed-term employees: gratuity after one year

Section 2(o) of the Industrial Relations Code defines fixed term employment as engagement on the basis of a written contract for a fixed period, subject to three conditions:

• hours of work, wages, allowances and other benefits must not be less than those of a permanent worker doing the same or similar work;
• the fixed-term worker is eligible for all statutory benefits available to a permanent worker, proportionately to the period of service, even if the period does not reach the statutory qualifying period; and
• the worker is eligible for gratuity if he renders service under the contract for one year.

The PIB summary describes this as gratuity eligibility after one year instead of five. Under the second proviso to Section 53(1) of the Code on Social Security, completion of five years’ continuous service is not necessary where employment ends on the expiration of fixed term employment. Fixed-term contracts should therefore be reviewed for parity of pay and benefits, and for gratuity accrual.

The Industrial Relations Code: thresholds and procedures

Standing orders: 300 workers

Chapter IV of the Industrial Relations Code, on standing orders, applies under Section 28 to every industrial establishment in which three hundred or more workers are employed, or were employed on any day of the preceding twelve months. Under Section 30, the employer must prepare draft standing orders, based on the model standing orders, within six months from the commencement of the Code. An establishment of that size that has not reviewed its standing orders since 21 November 2025 should do so now.

Lay-off, retrenchment and closure: 300 workers

Chapter X, which requires prior permission of the appropriate Government for lay-off, retrenchment and closure (Sections 78 to 80), applies under Section 77 to industrial establishments, other than seasonal or intermittent ones, in which not less than three hundred workers, or such higher number as the appropriate Government notifies, were employed on an average per working day in the preceding twelve months. Under the earlier central law, the comparable threshold was 100. For a Chapter X establishment, Section 79 requires three months’ written notice, or wages in lieu, and the prior permission of the appropriate Government before retrenching a worker with one year’s continuous service.

For other establishments, before retrenching a worker with at least one year’s continuous service, Section 70 requires one month’s written notice or wages in lieu, retrenchment compensation equal to fifteen days’ average pay for every completed year of continuous service or part exceeding six months, and notice to the appropriate Government as prescribed.

Worker re-skilling fund: 15 days’ wages

Section 83 requires the appropriate Government to set up a worker re-skilling fund. On retrenchment, the employer contributes an amount equal to fifteen days’ wages last drawn by the worker immediately before retrenchment, or such other number of days as the Central Government notifies, for every retrenched worker. The fund is to credit fifteen days’ wages to the retrenched worker’s account within forty-five days of retrenchment. This is in addition to retrenchment compensation, and settlement calculations should be updated to include it.

Notice of change: 21 days

Section 40 bars an employer who proposes to change conditions of service in respect of any matter specified in the Third Schedule from effecting the change without giving the affected workers notice, in the prescribed manner, of the nature of the change, or within twenty-one days of giving that notice. The proviso exempts, among other things, changes made under a settlement or award. Changes to wage structures, hours or leave in response to the Codes can themselves trigger this requirement.

Appointment letters and payment of wages

Section 6(1)(f) of the Occupational Safety, Health and Working Conditions Code requires every employer to issue a letter of appointment to every employee on appointment, with such information and in such form as may be prescribed. For employees who had not received one before the Code commenced, the letter was to be issued within three months of commencement. Employers who have not completed this exercise should prioritise it.

Section 17 of the Code on Wages fixes time limits for paying wages. Monthly wages must be paid before the expiry of the seventh day of the succeeding month. Where an employee is removed, dismissed, retrenched or resigns, or becomes unemployed due to closure, the wages payable must be paid within two working days, subject to any other time limit the appropriate Government provides. Full-and-final settlement processes built around a 30 or 45 day cycle should be reviewed against this.

The PIB release also highlights other employer-facing changes, including overtime at not less than twice the normal wage rate with consent, a free annual health check-up for workers above forty, and permission for women to work at night with their consent and required safety measures. The precise conditions are set by the Codes and the applicable rules.

A practical HR checklist

1. Map the appropriate Government for each establishment, and track both the central rules and the Maharashtra rules as they are finalised.
2. Re-test every salary structure against the wages definition and the 50% rule, and calculate the effect on gratuity and other wage-linked liabilities.
3. Issue or refresh appointment letters for every employee in the prescribed form.
4. Review fixed-term contracts for parity with permanent staff, proportionate benefits and one-year gratuity.
5. Count heads accurately. Establishments at or above 300 workers must have standing orders and must seek prior permission for lay-off, retrenchment and closure.
6. Update exit processes for retrenchment compensation, the re-skilling fund contribution and the two-working-day wage payment rule.
7. Plan changes to service conditions with the 21-day notice under Section 40 in mind.
8. Keep a change log of policies amended for the Codes, with dates, so that the transition can be demonstrated in any inspection or dispute.

Frequently Asked Questions

When did the Labour Codes come into force?

All four Labour Codes came into force on 21 November 2025, as announced by the Press Information Bureau. They replace 29 central labour laws.

Are Maharashtra’s rules under the Labour Codes final?

Maharashtra published draft rules on 28 April 2026 with a 45-day window for objections. As of the latest official update available when this article was prepared, they remained in draft, so employers should check the Gazette and the State Labour Department for the current position.

Do fixed-term employees now get gratuity after one year?

Yes. Under Section 2(o) of the Industrial Relations Code, a fixed-term worker is eligible for gratuity if he renders service under the contract for one year, and the Code on Social Security does not require five years’ service where employment ends on expiry of the fixed term.

What is the 50% rule in the definition of wages?

If excluded payments such as HRA, conveyance allowance, bonus and commission together exceed one-half of total remuneration, the amount in excess is added back to wages. This can increase gratuity and other wage-linked dues.

Does my establishment need prior permission to retrench workers?

Prior government permission under Chapter X of the Industrial Relations Code applies to industrial establishments with an average of 300 or more workers per working day in the preceding twelve months, or a higher number if notified. Smaller establishments must still give notice and pay retrenchment compensation under Section 70.

This article is for general information and is not legal advice.

This article is for general information only and is not legal advice or an invitation to engage the firm. Laws and judgments change; please obtain specific legal advice before acting.