India has undertaken a historic reform of its labour legislation by introducing four Labour Codes, replacing 29 existing central labour laws. This reform represents the most comprehensive overhaul of employment regulations in recent decades. The new framework is built around four core pillars: Wages, Industrial Relations, Social Security, and Occupational Safety, Health & Working Conditions (OSHWC).

For HR professionals and employers, these changes require a complete reassessment of salary structures, employment contracts, benefits administration, and compliance mechanisms. This guide explains the intent of the Labour Codes, highlights key changes, and outlines practical steps to help organisations transition smoothly.

Labour Codes Quick Snapshot for HR & Employers

• Four Labour Codes consolidate 29 legacy labour laws into a unified framework
• Wage Code caps allowances at 50% of CTC, increasing PF and gratuity bases
• Industrial Relations Code raises retrenchment approval threshold to 300 workers and formalises fixed-term employment
• Social Security Code expands coverage to gig and platform workers and reduces gratuity eligibility for fixed-term employees
• OSHWC Code mandates appointment letters, allows flexible work arrangements, enables women to work night shifts with safeguards, and introduces compulsory health check-ups for employees aged 40+
• HR Focus: Payroll audits, contract standardisation, digital compliance, and transparent communication

Rationale Behind the Labour Codes

India’s earlier labour regime was fragmented, with multiple definitions, overlapping compliances, and diverse enforcement authorities. To address these challenges, the government introduced the Labour Codes based on the “3S” approach – Simplification, Security, and Sustainable Growth.

The Codes streamline compliance through:

• A single wage definition
• Unified registration across labour laws
• One annual consolidated return
• Technology-driven, risk-based inspections

A major shift is the transition from punitive inspections to an “Inspector-cum-Facilitator” model. The emphasis is now on guidance and compliance enablement rather than enforcement through penalties, encouraging employers to build compliance into their systems.

Pre-Code vs Post-Code Compliance Framework

Aspect	Pre-Code Regime (Before Implementation)	Post-Code Regime (After Implementation)
Labour Laws	29 separate central laws	4 consolidated Labour Codes
Wage Definition	Multiple definitions under different Acts	Single unified wage definition
Salary Structure	No cap on allowances	Allowances capped at 50% of CTC
Registrations	Multiple registrations (EPF, ESI, CLRA, etc.)	Single integrated registration
Returns	Multiple periodic filings	One consolidated annual return
Inspections	Manual, discretionary, punitive	Web-based, risk-driven, facilitative
Women Employment	Restrictions on night shifts	Night shifts allowed with safeguards
Gig Workers	No legal recognition	Statutory recognition with social security
Contract Labour Licensing	Threshold at 20 workers	Threshold increased to 50 workers
Compliance Records	Fragmented and manual	Digitised and inspection-ready

Code on Wages: Restructuring Salary Components

The Code on Wages introduces a uniform definition of “wages” applicable across Provident Fund, gratuity, and bonus calculations.

Key Changes:

• Universal Minimum Wage: Minimum wages now apply to all employees, irrespective of sector or role. States must adhere to the National Floor Wage set by the Central Government.
• 50% Allowance Rule: Allowances cannot exceed 50% of total remuneration. Any excess is added back to wages for statutory calculations.

This necessitates a redesign of CTC structures, typically resulting in a higher basic salary component. While employees may experience a reduction in take-home pay due to increased PF deductions, long-term benefits such as retirement savings and gratuity improve.

Illustration: Impact on ₹50,000 Monthly CTC

Salary Component	Pre-Code Structure	Post-Code Compliant Structure	Effect
Basic Pay	₹15,000 (30%)	₹25,000 (50%)	Increased
Allowances	₹35,000 (70%)	₹25,000 (50%)	Restricted
Employee PF (12%)	₹1,800	₹3,000	+₹1,200
Take-Home Pay	Higher	Lower	Reduced

HR Action Points:

• Review and redesign salary templates
• Update payroll systems
• Communicate impact clearly to employees

Industrial Relations Code: Balancing Flexibility and Protection

The Industrial Relations Code enhances operational flexibility by increasing the threshold for government approval for retrenchment, layoffs, and closure from 100 to 300 workers.

Key Provisions:

• Reskilling Fund: Employers must contribute 15 days’ wages per retrenched employee
• Speedier Dispute Resolution: Direct access to Industrial Tribunals if conciliation fails
• Fixed-Term Employment: Recognised statutorily with parity in wages and benefits; gratuity payable after one year

HR Responsibilities:

• Standardise appointment, termination, and exit documentation
• Constitute Grievance Redressal Committees with women representation
• Ensure legally compliant fixed-term contracts

Social Security Code: Wider Coverage and Higher Accountability

The Social Security Code consolidates nine social security laws and significantly expands coverage.

Highlights:

• Gig and platform workers brought under the social security net
• Aggregators required to contribute 1–2% of turnover, capped at 5% of payouts
• PF and ESI calculations aligned with the Wage Code
• Gratuity eligibility for fixed-term employees reduced to one year
• Commuting accidents treated as employment-related incidents

The definition of “family” for female employees now includes dependent parents-in-law, requiring updates to insurance policies and nomination forms.

HR Action Points:

• Correct worker classification
• Update statutory nomination forms
• Reconfigure PF, ESI, and gratuity settings
• Maintain accurate digital records

OSHWC Code: Evolving Workplace Standards

The OSHWC Code modernises working conditions while retaining core safeguards.

Key Provisions:

• 48-hour weekly limit, with daily shifts extendable up to 12 hours
• Overtime payable at double the wage rate
• Mandatory appointment letters for all categories of workers
• Gender-neutral crèche facilities for establishments with 50+ employees
• Annual health check-ups for employees aged 40 and above
• Formal recognition of Work From Home arrangements

Women are permitted to work night shifts subject to written consent and employer-provided safety measures.

HR Priorities:

• Issue appointment letters universally
• Ensure compliance with crèche and health check requirements
• Document night-shift consents and safety protocols
• Configure attendance and overtime systems

The HR Mandate Going Forward

The Labour Codes require structured, transparent, and system-driven compliance. HR leaders must move beyond manual checklists and embed compliance into HRMS, payroll, and documentation workflows.

Transition Strategy

While some State Rules are still being notified, employers are advised to continue following existing rules while preparing systems for full implementation of the Labour Codes.