What Are the Four Labour Codes and What Do They Actually Change for You?
India’s labour law landscape was, for decades, a patchwork of 29 central statutes — the Factories Act, the Payment of Wages Act, the Industrial Disputes Act, the Employees’ Provident Funds Act, and more than two dozen others — many of them written in the 1940s and 1950s. The four Labour Codes consolidate all of these into a single, unified statutory framework.
The codes were passed by Parliament in 2019 and 2020, then spent years in implementation limbo while states drafted their own rules. That limbo ended on November 21, 2025, when the central government notified all four codes simultaneously, repealing the 29 legacy laws. Central rules were finalised around April 2026 and state-level implementation continues to roll out unevenly — but the framework is now law. Here is what each code covers and what it actually means for you as an employee.
Code 1: The Code on Wages, 2019
- Introduces a single unified definition of “wages” across all industries
- Sets a national floor wage below which no state minimum wage can fall
- Mandates that basic pay must be at least 50% of total compensation — the rule with the biggest payroll impact
- Requires payment of wages within 2 working days of termination or retrenchment
- Applies to all employees regardless of sector — factory workers, office staff, gig workers, domestic workers
The 50% Wages Rule — What It Actually Means for Your Salary
This is the single change with the most direct financial impact on salaried employees in India. Under the Code on Wages, your basic pay plus dearness allowance must constitute at least 50% of your total gross compensation.
This rule forces a restructuring — with significant downstream effects
Higher EPF contribution base and larger gratuity
Since EPF, gratuity, and leave encashment are all calculated on basic pay, a higher basic pay means larger statutory benefits. Your EPF corpus grows faster, and your gratuity entitlement at exit increases.
Lower take-home pay in some cases
If your basic pay is raised to meet the 50% threshold, your EPF deduction also increases proportionally — reducing your monthly take-home even if your CTC stays the same. The statutory benefit accrual improves; the monthly net may not.
Code 2: The Industrial Relations Code, 2020
- Raises the threshold for prior government permission before retrenchment from 100 to 300 workers
- Formalises fixed-term employment — fixed-term workers get full statutory benefits proportionate to tenure
- Introduces a 14-day notice requirement before a legal strike (increased from the previous requirement)
- Creates Reskilling Funds for retrenched workers
- Mandates standing orders (conduct rules) for establishments with 300+ workers (up from 100)
Fixed-term employees now get proper statutory benefits
If you are on a fixed-term contract, you are now entitled to all benefits — EPF, ESI, gratuity proportionate to service — that a permanent employee of the same category would receive. Fixed-term work can no longer be used to deny statutory entitlements.
Retrenchment rules relaxed for large employers
Establishments with 100–299 workers no longer need prior government permission before retrenching staff. This makes large-scale layoffs administratively easier for mid-size employers — though retrenchment compensation (15 days’ pay per year of service) still applies.
Code 3: The Code on Social Security, 2020
- Extends EPF and ESI coverage to gig workers and platform workers for the first time
- Reduces the gratuity qualifying period from 5 years to 1 year for fixed-term contract employees
- Extends maternity benefits framework to gig and unorganised sector workers
- Enables optional EPF membership for employees earning above the wage ceiling
- Creates a new Social Security Fund for unorganised, gig, and platform workers
Gratuity after 1 year — not 5
One of the most employee-friendly changes in the Code. Previously, gratuity required 5 continuous years of service. For fixed-term contract employees, this is now 1 year — acknowledging that fixed-term work is often short-cycle by design.
No change to core EPF and gratuity mechanics for permanent employees
If you are a permanent salaried employee, your EPF contributions, gratuity calculation (15 days per year), and ESI entitlements remain structurally the same — the change is in who the framework now extends to, not the core mechanics for existing covered employees.
Code 4: The Occupational Safety, Health and Working Conditions Code, 2020
- Standardises working hours at 8 hours per day, 48 hours per week across most sectors
- Allows flexibility in how the 48 hours are spread — enabling 4-day work weeks or compressed schedules where employer and employee agree
- Extends formal leave provisions (earned leave, sick leave, casual leave) to a wider range of establishments
- Introduces a single licence system for inter-state migrant workers and contract labour
- Mandates appointment letters for all employees — formalising an obligation that was previously inconsistently applied
- Applies to all establishments with 10 or more workers, expanding coverage significantly
The Consolidation at a Glance
| Code | Laws Replaced | Biggest Change for Employees |
|---|---|---|
| Code on Wages | 4 laws including Payment of Wages Act, Minimum Wages Act | Basic pay must be ≥50% of gross; universal wage definition |
| Industrial Relations Code | 3 laws including Industrial Disputes Act, Trade Unions Act | Fixed-term workers get full benefits; retrenchment threshold raised to 300 |
| Code on Social Security | 9 laws including EPF Act, Gratuity Act, Maternity Benefit Act | Gig workers inside social security; 1-year gratuity for fixed-term contracts |
| OSH & Working Conditions Code | 13 laws including Factories Act, Contract Labour Act | 48-hour week universalised; 4-day week enabled; appointment letters mandatory |
“The codes simplify the structure of compliance, but they expand the scope of who you are responsible for and reprice some of what you owe them. For employees, the 50% wages rule is the most immediate impact. For gig workers, it is the first time any of this applies at all.”
WorkRightsIndia — paraphrasing Palo Santo Consulting, June 2026What Is Still Being Rolled Out
| Provision | Status as of July 2026 |
|---|---|
| 50% wages rule | IN FORCE — employers in states with notified rules are restructuring payroll |
| Fixed-term employee benefits | IN FORCE — full statutory benefits for fixed-term workers where state rules notified |
| Gig worker social security contributions | PENDING — contribution rates (1–2% of aggregator turnover) still being finalised centrally |
| New pension scheme for gig/unorganised workers | PENDING — transition period continues until November 2026 |
| State-level enforcement across all states | PARTIAL — 11 states fully notified; major industrial states still in draft as of July 2026 |
| Mandatory appointment letters | IN FORCE — where state rules notified; obligation applies to all establishments with 10+ workers |
Frequently Asked Questions
The One Line to Remember
29 old laws became 4 codes on November 21, 2025. The most direct impact on your payslip is the 50% wages rule — it will push basic pay up, EPF contributions up, take-home potentially down, and gratuity at exit up. Whether this has fully hit your salary yet depends on your state’s implementation progress. If it hasn’t yet — it will.
This article is for informational purposes only and does not constitute legal advice. The Labour Codes are being implemented in phases, with state-level rules rolling out unevenly. Specific obligations, effective dates, and enforcement timelines may vary significantly by state. For advice specific to your situation or state, consult a qualified employment lawyer. Information in this article is current as of July 2026.