India implements a comprehensive labour code regime, redefining wage calculation, minimum wages, and social security, with significant implications for employers and workers across the country.
India’s new labour code regime took effect on 21 November 2025, replacing 29 central labour laws with four consolidated codes and ushering in the biggest overhaul of the country’s workplace rules in years. EY said the change covers the Code on Wages, 2019, the Code on Social Security, 2020, the Occupational Safety, Health and Working Conditions Code, 2020 and the Industrial Relations Code, 2020, while KPMG noted that the government is still consulting stakeholders on the remaining rules and regulations. In the meantime, existing labour laws continue to operate during the transition.
The most consequential change for employers is the new approach to wages. Under the framework, allowances and other exclusions cannot exceed half of total remuneration; if they do, the excess is added back into wages for statutory purposes. That matters because wage definition now feeds into calculations for provident fund, gratuity, bonus, overtime and other benefits. In practice, salary structures built around a low basic pay and a long list of allowances may need to be redesigned, with companies checking whether their payroll models still meet the new test.
The rules also sharpen the position on minimum wages and working hours. Minimum wage compliance must now be met through basic pay and dearness allowance, rather than by shifting value into house rent allowance or similar components. The codes also maintain an eight-hour workday, a 48-hour workweek and overtime at twice the wage rate, subject to the applicable rules. That makes record-keeping more important, with appointment letters, attendance systems and payroll data expected to match.
Social security provisions are also shifting. The new framework leaves provident fund and employee state insurance coverage tied to existing wage ceilings for now, but any recalculation of wages can alter contribution amounts and eligibility checks. Fixed-term employees gain a clearer route to gratuity on a pro-rata basis after one year of continuous service, although that does not extend to contract labour. Employers using short-term or project-based hiring will need to revisit provisioning and cost assumptions.
Contract labour and new forms of work are another focus. The Occupational Safety, Health and Working Conditions Code applies contract labour rules when 50 or more workers are engaged on any day in the preceding 12 months. It also restricts contract labour in core activities, subject to exceptions such as intermittent or specialised work. At the same time, the social security code now formally recognises gig and platform workers, with the government expected to design separate schemes and define how aggregators contribute. For employers, the message is clear: wage design, workforce classification and vendor oversight now sit within one integrated compliance system, and the first year of implementation will be decisive.
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