India’s new Labour Codes: A concise overview of changes, implementation and impact

In this ‘Leading Questions’ section, Kripi Kathuria discusses the four new Labour Codes which simplify regulation, improve compliance and extend protections, including for gig and platform workers, as well as the phased implementation of the Codes.

Question: Please provide a general overview of India’s Labour Codes.

Answer: India’s labour law framework had, over time, become complex and compliance-heavy, with multiple registrations, licences and returns required under numerous legislations. The emergence of evolving work patterns and new forms of employment further highlighted the need for a simplified and coherent regulatory structure.

In this backdrop, the Ministry of Labour and Employment (Ministry) undertook a significant reform by consolidating 29 (twenty nine) Central Labour Acts into 4 (four) comprehensive codes, namely: (i) the Code on Wages, 2019; (ii) the Industrial Relations Code, 2020; (iii) the Code on Social Security, 2020; and (iv) the Occupational Safety, Health and Working Conditions Code, 2020 (collectively, the ‘Labour Codes’). This reform marks one of the most significant developments in India's labour legislation trajectory in recent decades.

The overarching objective of the Labour Codes is to simplify and rationalise the regulatory framework, promote transparency, and create a unified structure, while balancing worker welfare with ease of doing business.

The Code on Wages, 2019 consolidates 4 (four) central labour laws relating to wages and aims to balance the rights of workers and facilitate ease of compliance for employers.

The Industrial Relations Code, 2020 consolidates 3 (three) central labour laws and rationalises the provisions relating to trade unions, conditions of employment in industrial establishment or undertaking, and the investigation and settlement of industrial disputes.

 The Occupational Safety, Health and Working Conditions Code, 2020 consolidates 13 (thirteen) central labour laws and introduces measures such as single registration, all-India licences, electronic filings, and time-bound approvals to improve compliance efficiency while ensuring safe and healthy working conditions.

The Code on Social Security, 2020 subsumes 9 (nine) central labour laws and provides for provisions relating to employees' provident fund organisation, employees' state insurance corporation, gratuity, maternity benefits, and employee compensation. It formally recognises gig workers and platform workers for the first time under the Indian labour law and extends certain social security benefits to them.

Overall, the Labour Codes aim to modernise India’s labour law framework by reducing multiplicity of laws, enhancing compliance efficiency, and extending protections to a broader workforce.

Question: What is the current status of the implementation of the Labour Codes and the corresponding central and state rules?

Answer: The Labour Codes are proposed to be implemented in a phased manner.

The Ministry of Labour and Employment, vide notification dated November 21, 2025, has brought the Labour Codes into force. However, certain provisions of the Labour Codes are yet to be brought into effect. Further, their full operationalisation remains contingent upon the notification of the corresponding Central and State rules, schemes, and compliance frameworks.

It is pertinent to note that labour is a concurrent subject under the Constitution of India, with both the Central and State governments having the power to legislate on the subject matter.

The Ministry, through its press release dated November 21, 2025, clarified that during this transitional phase, the existing labour laws and their corresponding rules, regulations, and schemes will continue to remain in force.

Further, the Ministry issued the draft corresponding Central rules under the Labour Codes on December 30, 2025. These were opened for stakeholder consultation for a period of 30 (thirty) days in respect of the draft rules under the Industrial Relations Code, 2020, and 45 (forty five) days for the draft rules under the other 3 (three) Labour Codes and are expected to be in effect from April 1, 2026.

Similarly, most State governments have also published draft rules under the Labour Codes inviting public comments, while a few States have already notified their final rules.

While the Labour Codes mark a significant step towards labour law reform in India, their effective implementation remains dependent on the finalisation and notification of the corresponding Central and State rules.

Question: What is the impact of the new uniform definition of ‘wages’ under the Labour Codes?

Answer: The Code on Wages, 2019 introduces a uniform, formula-based definition of ‘wages’ applicable across the new labour legislations. Under this framework, wages include basic pay, dearness allowance, and retaining allowance (if any) and excludes house rent allowance (HRA), overtime allowance, conveyance allowance, and other prescribed allowances. However, such exclusions cannot exceed 50% (fifty percent) of the total remuneration. Any ‘exclusions’ in excess of 50% (fifty percent) are required to be added back into wages.

The definition also addresses the payment of wages in kind. Specifically, it provides that where an employee is given any remuneration in kind by the employer, the value of such remuneration in kind which does not exceed 15% (fifteen per cent) of the total wages payable shall be deemed to form part of the wages of such employee.

While, the uniform definition simplifies compliance by eliminating ambiguity across multiple statutes, it has a direct impact on all statutory benefits which are linked to the base pay, including provident fund contributions, gratuity computation and consequently on the overall cost-to-company structuring. Allowances such as HRA, travel or conveyance reimbursements, and similar components, which were traditionally structured for tax efficiency, must now be evaluated carefully to ensure compliance with the 50% (fifty percent) cap.

As it is applicable with immediate effect from November 21, 2025 it has led to companies proactively reassessing their salary structures in consultation with their finance and tax teams.

It is advisable for the companies to clearly segregate allowances that are excluded from wages and ensure that wages constitute at least 50% (fifty percent) of total compensation to avoid unintentional breach of the statutory cap.

Question: What are the key changes to the provisions relating to annual leave with wages under the Occupational Safety, Health and Working Conditions Code, 2020?

Annual leave with wages is now governed by the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code). The OSH Code has reduced the eligibility threshold for earning such leave from 240 (two hundred and forty) days to 180 (one hundred and eighty) days of work in a calendar year.

Unused earned leave does not lapse at the end of the calendar year. Such leave may be carried forward, subject to a statutory cap of 30 (thirty) days. Any balance exceeding 30 (thirty) days must be mandatorily encashed by the employer at the end of the calendar year.

An exception to the statutory cap has also been put in place in case a leave applied for is refused by the employer, such refused leave can be carried forward without being subject to the 30 (thirty) day cap.

It is however, relevant to note that these provisions apply to employees other than those employed mainly in managerial or administrative capacities, or supervisory employees drawing wages above the prescribed threshold.

While, the OSH Code provides for provisions on annual leaves, the interplay between the OSH Code and State-specific Shops and Establishment Acts remains to be seen. It is likely that the companies will typically determine and apply the more beneficial entitlements between the OSH Code recently notified and the applicable State Shops and Establishments Act, for their employees.

Kripi Kathuria is a Partner at Phoenix Legal.