India's 4 New Labour Codes Are Now in Full Force

What Are the 4 Labour Codes?

India's Parliament enacted four landmark Labour Codes consolidating 29 central labour laws into a single, unified framework. These codes have now come into force, fundamentally altering employer obligations across wages, employment conditions, social security, and occupational safety.

Code on Wages: The 50% Basic Wage Rule

The most consequential change for payroll departments is the 50% Basic Wage Rule. The Code on Wages mandates that the sum of basic wages and dearness allowance (DA) must constitute at least 50% of an employee's total Cost to Company (CTC).

Why This Matters for EPF

Since EPF contributions are calculated on basic + DA, a higher basic wage means significantly higher EPF contributions for both employer (12%) and employee (12%). For employers who have historically inflated allowances to suppress the basic wage, this creates a substantial additional cost burden.

What Employers Must Do

• Audit all salary structures where Basic + DA falls below 50% of CTC
• Restructure compensation while ensuring take-home pay is not reduced
• Recalculate EPF, gratuity, and bonus liabilities under the revised structure
• Update payroll software and salary breakup formats
• Communicate changes to employees with a clear comparative statement

Industrial Relations Code: Fixed-Term Employment & Standing Orders

The IRC 2020 introduces Fixed-Term Employment (FTE) as a statutory category for the first time in central law. FTE workers are entitled to all benefits proportionate to their service period — including gratuity after just one year of service.

Standing Orders Threshold

Previously, establishments with 100 or more workers required certified Standing Orders. The IRC raises this threshold to 300 workers, giving smaller manufacturers greater operational flexibility. However, model standing orders will be deemed applicable to establishments below 300 workers.

Retrenchment Notice Changes

For establishments with 300 or more workers, prior government permission is now required for layoffs, retrenchment, and closures. This threshold was previously 100 workers under the Industrial Disputes Act.

Social Security Code: Gratuity & Gig Workers

The Social Security Code 2020 dramatically expands the scope of social security in India, bringing gig workers and platform workers under its ambit for the first time.

1-Year Gratuity for Fixed-Term Employees

Fixed-term employees are entitled to gratuity on a pro-rata basis after completing one year of service, compared to the standard five-year threshold for permanent employees. This is a significant cost consideration for industries relying heavily on contract or project-based staffing.

EPF/ESIC Expansion to Gig Workers

Aggregators and platform companies must now contribute to a new Social Security Fund for gig and platform workers. The government has the power to notify the contribution percentage — expected to be between 1–2% of the aggregator's annual turnover.

OSH Code: Safety Officer & Health Records

The Occupational Safety, Health and Working Conditions Code 2020 consolidates 13 existing laws into one comprehensive framework covering factories, mines, construction, plantations, and contract labour.

Safety Officer Requirement

Any factory employing 500 or more workers must appoint a qualified Safety Officer. Previously, this requirement applied only to certain categories of hazardous industries.

Annual Health Records

Employers must maintain annual health records for all workers. This includes pre-employment medical examinations, periodic health check-ups, and records of occupational diseases.

Welfare Officer

Establishments with 500+ workers in certain industries must appoint a Welfare Officer responsible for worker well-being, grievance redressal, and liaison with management.

Compliance Action Checklist: 8 Immediate Actions

1. Salary Audit: Review all salary structures. Flag any where Basic + DA is less than 50% of CTC.
2. CTC Restructuring: Revise salary breakups to comply with the 50% rule without reducing net take-home pay.
3. EPF Recalculation: Recompute EPF contributions based on the revised basic wage. Budget for the increased outflow.
4. FTE Contract Review: If using fixed-term contracts, update templates to include all statutory entitlements (proportionate gratuity, leave, etc.).
5. Standing Orders: If you have 300+ workers, certify or update standing orders under the IRC 2020.
6. Safety Infrastructure: If 500+ workers, appoint a qualified Safety Officer and Welfare Officer immediately.
7. Health Records System: Implement a digital or physical system for maintaining annual health records for every worker.
8. Gig Worker Registry: If you engage gig/platform workers, identify them and prepare for Social Security Fund contributions once notified.

Conclusion

India's four Labour Codes represent the most significant restructuring of employment law in decades. While the consolidation simplifies compliance in theory, the transitional phase demands careful auditing, restructuring, and documentation from every employer. The 50% wage rule alone will affect the majority of organised sector employers. The time to act is now — before enforcement penalties begin accumulating.