A Complete Guide to the Four New Labour Codes Effective November 21, 2025

Labour laws in India have changed significantly over the past few years. Earlier, employment rules were spread across many Acts, and most organisations treated labour compliance as a formality. Employees, especially those on contract or fixed-term roles, had limited legal clarity on wages, social security, industrial relations, and workplace safety. 

But now, labour laws have become stricter and more structured to protect both workers and employers. From 21 November 2025, the Labour Codes 2025 come into effect, bringing India's laws on wages, industrial relations, social security, and workplace safety under a single, modern framework. 

For businesses, this means revisiting their broader legal compliance obligations, especially those outlined in our guide on top legal compliance requirements for businesses in India. 

These four Labour Codes replace 29 existing central labour laws, reducing overlap and creating clearer rules across industries and states. 

 Why the New Labour Codes Matter

Most of India's labour laws were written between the 1930s and 1950s, for an economy very different from today's. Over time, this created a complex and outdated system that struggled to address modern work arrangements like fixed-term, gig, and platform employment. The Labour Codes 2025 respond to this gap by aligning labour regulations with current economic realities, while balancing worker welfare with ease of doing business. 

The four new Labour Codes, Code on Wages 2019, the Industrial Relations Code 2020, the Code on Social Security 2020, and the Occupational Safety, Health and Working Conditions Code 2020, expand legal protection to modern forms of employment. They strengthen minimum wage safeguards, improve access to social security, and set uniform standards for working hours, safety, and dispute resolution. At the same time, they simplify compliance through single registrations, licences, and returns. 

If employers do not comply with the new labour requirements, they may face penalties, inspections, and legal disputes. In fact, many salary-related disputes already arise due to non-payment or delayed wages — if you are facing such an issue, here’s what to do if your employer doesn’t pay salary on time. 

The Four New Labour Codes: Acts Being Replaced 

The new framework consolidates 29 central labour laws into four comprehensive codes. Here is what each code replaces: 

Pre vs. Post Labour Reform: What Has Changed

The 50% Basic Pay Rule: How Your Salary Structure Changes 

The most significant change under the Code on Wages 2019 is the standardised definition of 'Wages.' Historically, companies kept Basic Pay low, around 25 to 35% of CTC, and padded the rest with allowances to reduce PF and gratuity liability. That approach is now over. 

What Is the 50% Rule? 

The 50% Rule mandates that Basic Salary must be at least 50% of the total Cost to Company (CTC). All remaining components, allowances, bonuses, perk, cannot collectively exceed 50%. 

Earlier, companies kept basic pay artificially low to inflate allowances and reduce statutory payouts. The new rule closes this loophole and enforces fair retirement contributions. 

This directly impacts PF compliance and filings, making proper PF registration and accurate PF return filing more critical than ever for employers. 

Key Impacts of the 50% Rule 

• Higher Basic Pay: Mandatory increase to a minimum of 50% of CTC 
• Higher PF Contributions: PF = 12% of basic salary,a higher basic means higher deductions 
• Higher Gratuity Accrual: Gratuity is calculated on basic pay, so long-term retirement benefits increase 
• Lower Monthly Take-Home: Since CTC remains fixed, additional PF/gratuity is offset by reducing HRA and special allowances 

Tax Impact of the 50% Rule 

The restructuring of salary components directly affects taxable income. Higher PF contributions may reduce immediate take-home salary but also shift tax calculations. 

Employees should reassess their tax strategy, especially while filing returns through professional income tax return filing services or consulting experts via online tax consultancy services. 

If you receive scrutiny or notices due to salary restructuring, here’s a guide on handling an income tax notice as a salaried employee. 

Before vs. After: Salary Structure Comparison 

Real-Life CTC Example (Rs. 10,00,000 per Year) 

Under the old structure with Basic Pay at 35% of CTC: 

• Annual CTC: Rs. 10,00,000 
• Basic Pay: Rs. 3,50,000 
• PF (12% of basic): Rs. 42,000 per year 
• Higher monthly take-home due to more allowances  

Under the new 50% Rule: 

• Annual CTC: Rs. 10,00,000 (unchanged) 
• Basic Pay: Rs. 5,00,000 
• PF (12% of basic): Rs. 60,000 per year 
• Increase in PF: Rs. 18,000 annually 
• Monthly impact: approximately Rs. 1,500 reduction in take-home 

2025 vs. Prior Rules: The Key Changes at a Glance 

Gratuity: Big Changes for Fixed-Term Workers 

Gratuity is no longer just a loyalty bonus for long-serving permanent employees. Under the new codes: 

• Fixed-Term and Contract Employees: Eligible for gratuity after just 1 year of continuous service 
• Permanent Employees: Continue to be eligible after 5 years of continuous service 
• Higher Payouts: Since gratuity is calculated on 'wages' under the new definition, final payouts will be substantially larger 

This is one of the biggest wins for the modern workforce ,contract workers and fixed-term employees now have the same financial safety net as permanent staff. 

If employers fail to settle dues correctly, employees may need formal legal remedies such as issuing a non-payment of salary legal notice. 

The 48-Hour Exit Rule: Faster Full and Final Settlements 

Transparency and speed are the themes of 2025. Under the new Industrial Relations Code, if you resign, are retrenched, or are dismissed, your employer is legally mandated to complete your Full and Final (F&F) settlement within two working days. No more waiting 45 to 90 days for your final paycheck. 

If disputes arise regarding termination or unpaid dues, employees can seek structured support through an employment dispute resolution service 

Sector-Specific Benefits Under the New Labour Codes 

The new labour rules introduce targeted protections across industries. Here is how different workforce segments benefit: 

1. Fixed-Term Employees (FTEs) 

• All benefits equal to permanent workers: paid leave, medical benefits, social security 
• Gratuity eligibility after just one year of continuous service 
• Equal wages as permanent employees for the same work 
• Encourages direct hiring and reduces excessive contractualisation 

2. Gig and Platform Workers 

• 'Gig work', 'Platform work', and 'Aggregators' defined for the first time under labour laws 
• Aggregators must contribute 1-2% of annual turnover (or up to 5% of amount paid, whichever is lower) to a welfare fund 
• Aadhaar-linked Universal Account Number (UAN) introduced for easy, portable access to welfare benefits 
• Benefits remain accessible even if workers migrate across states 

3. Contract Workers 

• Equal benefits as permanent employees 
• Social security and legal protection 
• Gratuity eligibility after one year of continuous service 
• Principal employer responsible for health benefits, social security, and free annual health check-ups 

4. Women Workers 

• Gender discrimination legally prohibited ,equal pay for equal work mandated across all sectors 
• Women allowed to work night shifts and in all sectors including underground mining and heavy machinery 
• Conditions for night work: written consent, mandatory safety arrangements, and women's representation in grievance redressal committees 
• Family definition expanded for female employees to include parents-in-law, improving dependent coverage 

Companies must also strengthen workplace safety policies, including mandatory POSH compliance, which you can streamline through professional POSH compliance consultation services. 

5. IT and ITES Workers 

• Salary release mandatory by the 7th of every month 
• Equal pay for equal work enforced 
• Women allowed to work night shifts in all establishments 
• Timely resolution of harassment, discrimination, and wage-related disputes 
• Guaranteed social security through fixed-term employment and mandatory appointment letters 

6. MSME Workers 

• All MSME workers covered under the Social Security Code 2020 
• Minimum wage guaranteed 
• Access to canteens, drinking water, and rest areas 
• Standard working hours, double overtime wages, paid leave, and timely wage payment 

For growing businesses, this reform ties closely with formalisation requirements like MSME registration online, ensuring eligibility for compliance benefits and government schemes. 

7. Migrant and Textile Workers 

• All migrant workers (direct, contractor-based, self-migrated) entitled to equal wages and welfare benefits 
• PDS portability across states 
• Claims for settlement of pending dues for up to 3 years 
• Double wages mandatory for overtime 

8. Mine and Hazardous Industry Workers 

• Free annual health check-ups mandatory 
• Working hours capped at 8-12 hours per day and 48 hours per week 
• Mandatory safety committees at each site 
• Women allowed to work in hazardous jobs and underground mining 
• Strict safety rules for handling hazardous chemicals 

System-Wide Labour Reforms: Applicable Across All Sectors 

Beyond sector-specific benefits, the new Labour Codes introduce system-wide reforms that strengthen worker protection, promote fairness, and significantly simplify compliance. 

1. National Floor Wage 

A National Floor Wage will be established by the Central Government. No worker in India can be paid below this minimum living standard. States must fix minimum wages at or above the national floor wage. 

2. Gender Neutrality and Equal Opportunity 

Discrimination is explicitly prohibited against women, men, and transgender persons. Equal pay for equal work is mandated across all sectors. 

3. Inspection and Enforcement Reform 

The Inspector-cum-Facilitator system shifts the focus from punishment to guidance, awareness, and compliance support. This encourages voluntary compliance and reduces harassment. 

4. Faster and Predictable Dispute Resolution 

Industrial disputes will be resolved through two-member Industrial Tribunals. Workers can approach tribunals directly after conciliation attempts fail, reducing delays and prolonged litigation. 

5. Simplified Compliance Framework 

Employers now need a single registration, single licence, and single return ,replacing multiple overlapping filings. This significantly reduces paperwork and compliance burden, especially for growing businesses. 

6. Uniform Safety and Health Standards 

A National Occupational Safety and Health (OSH) Board will set harmonised safety and health standards, ensuring consistency across sectors and states.  

Risks of Non-Compliance 

If companies do not follow the new wage structure and labour regulations, they may face: 

• Heavy financial penalties 
• Legal disputes and compliance audits 
• Reputational damage 
• Employee loss of retirement benefits and legal protections if salary is improperly structured  

How Digilawyer Can Help You 

While the new rules might feel like they are taking a bite out of your current paycheck, they actually open up new avenues for smart financial planning. Here is how Digilawyer helps you turn these changes into an advantage: 

The Bottom Line 

2025 is the year of Security Later over Cash Now. While your monthly bank credit might look slightly smaller, you are building a much more robust financial future. Workers gain stronger protections, employers gain a simpler compliance framework, and India's workforce, gig, contract, and permanent alike, finally gets the legal recognition it deserves. 

Do not wait for penalties. Audit your payroll, restructure your CTC, and consult Digilawyer's experts to get ahead of the curve. 

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