Labour Codes in India: What Changed and What It Means for Your Business

In a country like India, business leaders and founders understand the importance of payroll. They also understand how much it matters for them to stay compliant with the state and central norms. In November 2025, the government of India announced a transformative decision – the introduction of 4 new labour codes.

Since then, “4 new labour codes” have become more of a buzzword in the Indian business space, and for good reasons. This is the biggest overhaul of labour laws since Indian independence. For a very long time, the labour laws were scattered and also state-specific. However, all that changed with the government’s decision to unify them.

This means introducing reforms designed to bring transparency, uplift, and strengthen labour and migrant workers’ security across the country.

And for businesses, this means new compliance rules, a new salary structure, and questions that need to be answered.

So we thought of creating a guide that thoroughly explains what the new labour codes in India actually mean, what’s already in force and where, and what you need to do about it!

And if you are here looking for answers related to these codes, then you have come to the right place.

New labour codes India: Explained!

On 21st November, 2025, the Government of India announced to consolidate 29 older labour laws and unify them into 4 labour codes. The purpose was simple – to change the decades-old, complex legal framework and to modernize it and make it simple. The final central rules were notified on 8th May 2026. States are notifying their own rules at different speeds, since labour sits on the Concurrent List and both the Centre and states get a say.

Now, let’s understand what these 4 new labour codes are:

1. The Code on Wages, 2019:

This code merges the previous old acts – Minimum Wages Act, the Payment of Wages Act, the Payment of Bonus Act, and the Equal Remuneration Act.

It does three things that matter most for payroll:

• Sets a uniform, national definition of “wages” for the first time
• Introduces a floor wage that no state can undercut
• Mandates equal pay for equal work, regardless of gender

This is also the code behind the new wage code salary structure, which we’ll get into shortly.

2. The Industrial Relations Code, 2020:

This one replaces the previous old acts- the Trade Unions Act, the Industrial Employment Act, and the Industrial Disputes Act.

It raises the threshold for standing orders and government approval before layoffs, giving mid-sized companies more flexibility. It also introduces fixed-term employment as a recognized category, with the same benefits as permanent staff on a pro-rata basis.

3. The Code on Social Security, 2020:

This code brings Provident Fund, Employees’ State Insurance, gratuity, and maternity benefits under one roof. It’s also the first labour law to formally define gig and platform workers and create social security for them.

4. The Occupational Safety, Health and Working Conditions Code, 2020:

This code sets laws around healthy & safety and working conditions across industrial establishments. It mandates annual health checkups for employees above 40, appointment letters for every employee, and clear rules on working hours and OTs.

New salary structure: The change that every payroll team should be aware of

Out of all four, if there is one code that has a more direct, visible impact, then it has to be the Code on Wages, 2019. And where can one spot its impact? The answer is employees’ salary slips.

Under the old law, companies had the freedom to structure CTC. Many kept basic pay low and loaded salaries with allowances, since PF and gratuity are calculated on basic pay. Lower basic pay meant lower statutory contributions.

But that changed with the introduction of the Code on Wages, 2019. What it first did was redefine the term “wages”. Under the new code, wages means all remuneration expressed in money or capable of being so expressed, comprising basic pay, dearness allowance (DA), and retaining allowance.

Apart from this, it mandates a 50% rule. This means that total specified allowances and exclusions cannot exceed 50% of an employee’s total remuneration. Any excess will be added back to the wage pool.

What does this mean for your payroll?

Here’s what changes once basic pay makes up at least 50% of CTC:

• Provident Fund contributions go up, since PF is calculated on basic pay, and basic pay is now higher.
• Gratuity payouts increase, for the same reason.
• Take-home pay may dip slightly, because a larger share of CTC now goes into these statutory contributions rather than cash-in-hand allowances.
• CTC structures need to be rebuilt for nearly every employee, not just new hires.

Now, these are some really heavy calculations and trying to do them on spreadsheets will add just another layer of complexity. Even a minor mistake here can make your business pay a heavy price. So, what’s the solution? Payroll software! One with built-in capabilities for managing Indian statutory compliance effectively. Plus, it will be a time-saver, since the whole process will be automated. Another benefit is that the system will immediately detect and flag any kind of mismatch, keeping your salary structures audit-ready.

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Where does implementation of the new labour code stand right now?

State-level progress:

As of mid-2026, about 15 states/UTs have notified final rules, and 23 states are in the drafting phase.

The transition period:

Right now, companies operate in a hybrid legal environment. For central jurisdictions, the new codes apply, but for state-regulated businesses, legacy laws remain active until that specific state formally finalizes its rules.

All this means employers should treat compliance readiness as urgent, even where full state-level enforcement hasn’t kicked in yet. Waiting for a formal deadline in every state isn’t a safe strategy, since provisions can become enforceable state by state.

What HR and payroll teams should do now?

Audit your CTC structures:

Check whether basic pay plus DA meets the 50% threshold for every employee.

Update appointment letters:

These are now mandatory for every employee under the OSH Code.

Recalculate PF and gratuity provisions:

Higher basic pay changes your statutory liability, so your budgeting needs to reflect that.

Track your state’s rule notifications:

Compliance obligations differ depending on where your employees are based.

Review contracts for fixed-term employees and gig workers:

Both contract labour, gig, and platform workers now have defined rights and benefits under the new codes, making the process of reviewing the employment contracts essential.

Conclusion

There you have it, a comprehensive guide on the labour codes in India. In a country with approximately 1.4 billion people, managing a workforce through old labour laws won’t be able to deliver positive results. That’s why the central government decided to unify the 29 traditional, existing labour acts into 4 new labour codes, resulting in the simplification of the legal framework. Also, all four labour codes focus on safeguarding the interests of the workforce, while ensuring that the employers and their businesses remain compliant. We have talked about them in great detail. And while the roll-out process is still going on in some states, most of the major state governments in India have already adopted them. This is also a wake-up call for businesses to start revising their payroll structure and ensure that it aligns with the requirements. Otherwise, the businesses will be considered non-compliant.

Now, for businesses, making changes to their existing system can be a daunting task. And doing all that through a manual process will not only be time-consuming, but also put the business at risk, because even a minor mistake won’t go unnoticed. That’s why there is a need for a smart solution that not only automates the compliance process, but also keeps the business audit-ready all the time. Super Payroll, a trusted payroll solution by Superworks, is keeping businesses of all sizes compliant, whether it is an SMB or a growing enterprise. Founders are choosing it not only for its exceptional set of features, but also for its swift implementation and onboarding, with the best support team that ensures that no payroll cycle ends up in a chaotic way. Book a demo to simplify compliance and change the way you manage your payroll.