New Labour Codes 2025: What Every Employer and Employee Must Know

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On 21^st November 2025, the Indian government passed the much-awaited reforms for the Indian labour laws, replacing 29 different laws with 4 Labour Codes, ensuring a streamlined approach towards labour compliance. These changes guarantee minimum wages, equal pay, gratuity, workplace safety, and social security for over 400 million Indian workers. These changes mark a significant restructuring of Indian labour reforms by balancing worker welfare with business efficiency.

These four Labour Codes are:

The Code on Wages, 2019
The Industrial Relations Code, 2020
The Code on Social Security, 2020
The Occupational Safety, Health, and Working Condition Code, 2020.

Key Changes in Indian Labour Laws

As these laws come into effect, the following are the major changes associated with them:

1. Code on Wages, 2019

Provides a standard definition of ‘wages’ to reduce disputes.
Introduces a National Floor Wage, which is applicable across states.
Ensures timely payment of wages to employees, as well as equal pay.
Assures full and final settlement within 2 working days after an employee’s last working day.

2. Industrial Relations Code, 2020

Simplifies rules for trade unions, hiring, firing, and dispute resolution.
Requires firms with 300+ workers to seek government approval before layoffs or closures.
Encourages collective bargaining and industrial peace.

3. Code on Social Security, 2020

Extends social security benefits like provident fund, insurance, and maternity benefits to gig workers, platform workers, and contract employees.
Introduces universal coverage rather than threshold-based eligibility.

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

Sets uniform standards for workplace safety and health.
Mandates appointment letters for all employees, including blue-collar workers.
Expands coverage to migrant and informal workers, ensuring better working conditions.

Also Read:

▸ 2-day Full and Final Settlement under New Labour Codes 2025

Top 10 Highlights of the New Labour Codes

Fixed-term Workers will receive equal benefits to permanent workers, including gratuity within 1 year (instead of 5), social security, medical cover, and more.
Gig and Platform workers are formally recognized, who were previously outside any protection until now.
Coverage under the Social Security Code extends to MSME employees, as well as hazardous workplaces.
Mandatory timely payments with the establishment of a standard national minimum wage.
Women can work in all categories, while their pay should be equal to their male colleagues.
Annual free health check-ups, as well as safety committees in organizations.
Contract and migrant workers will receive equal pay and access to welfare schemes.
Working hours in most sectors are capped between 8 to 12 hours per day.
Leaves will be accumulated after 180 working days annually in specific sectors.
Universal appointment letters in all industries, leading to improved transparency and compliance.

The Beginning of a New Era

The new Labour Codes indicate a philosophical and structural shift in the mindset of Indian leaders, putting India on the global roadmap towards ‘Aatmanirbhar Bharat’. With the universalization of Indian labour rights, we have moved from a selective, threshold-based coverage to a near-universal protection for staff members. Similarly, these Codes also ensure that companies adopt digital compliance systems, reducing paperwork and corruption, which keeps records secure. It also puts the informal workers into the formal economy, boosting transparency and accountability.

Impact on Employees

400 million workers will now be covered under minimum wages and social security guarantees, ensuring timely payments and reducing exploitation. Similarly, the female workers should be paid equally under the new Labour Codes, ensuring gender equality. It also emphasizes the contributions of the gig workers, such as delivery partners, ride-hailing drivers, freelancers, etc., by ensuring that they get access to social security schemes. Finally, with the introduction of Appointment letters to all workers, companies need to recognize their employment.

Impact on Employers

As the Labour Codes replace 29 different Indian labour laws, it vastly simplifies compliance for Indian employers. Universal ‘wages’ definition further simplifies compliance, while a greater responsibility is shared by the companies in ensuring their workplace safety. However, it also puts them in a difficult position, as they need to navigate both the Labour Codes and the individual state labour laws to maintain 100% Compliance.

Comparison of Indian Labour Laws: Before vs After November 2025

Aspect	Before	After
Number of Laws	29 separate, overlapping labour laws	Consolidated into 4 Labour Codes
Wages	Minimum wage varied by state, often inconsistent	National floor wage introduced; uniform definition of ‘wages’
Equal Pay	Fragmented provisions, weak enforcement	Equal pay for equal work is explicitly guaranteed
Payment of Wages	Delays are common due to multiple definitions and provisions	Timely payment mandated with simplified wage definition
Industrial Relations	Complex rules for trade unions, strikes, and layoffs	Simplified rules, such as firms with 300+ workers need approval for layoffs/closures
Social Security	Limited to formal sector workers	Extended to gig workers, platform workers, and contract employees
Provident Fund & Insurance	Threshold-based eligibility, such as being applicable to organizations with over 20 employees	Universal coverage regardless of thresholds
Occupational Safety	Different standards across industries	Uniform safety & health standards across sectors
Appointment Letters	Not mandatory in multiple sectors	Mandatory appointment letters for all employees
Migrant & Informal Workers	Often excluded from protections	Explicitly included under working condition protections
Compliance	Paper-heavy, state-specific, overlapping requirements	Digital compliance systems with simplified reporting
Worker Coverage	Mostly the formal sector (~10% of the workforce)	400 million workers covered, including informal and gig economy
Employer Burden	Multiple inspections, overlapping laws	Simplified compliance, but higher wage bills & social security contributions

Key Reforms with the New Labour Codes

1. Salary Structure Take-Home Pay

Basic Pay Rule: At least 50% of total salary must now be classified as basic pay.
Impact: While this reduces take-home salary, it increases contributions to Provident Fund (PF) and gratuity, strengthening long-term financial security for employees.
Employer Note: Payroll systems must be updated to comply with the new definition of “wages.”

2. Annual Leaves

Eligibility: Employees qualify for annual leave after 180 days of service (previously 240).
Entitlement: Workers receive 20 annual leaves, with the option to carry forward up to 30 unused leaves.
Benefit: Faster access to leave balances improves employee well-being and retention.

3. Digitalization and Compliance

Mandatory Digital Records: Employers must now maintain employee records digitally.
Inspections: Labour authorities conduct random online inspections, reducing paperwork and corruption.
Settlements: Faster settlement of wages and dues is now legally enforced.

4. Workplace Safety and Employee Protection

Uniform Standards: Occupational safety and health rules are standardized across industries.
Appointment Letters: Employers must issue formal appointment letters to all employees.
Coverage Expansion: Migrant and informal workers are now explicitly protected under the law.
Definitions: Terms like “worker,” “factory,” and “hazardous environment” have been legally clarified, reducing ambiguity.

5. Social Security for All

Universal Coverage: Social security benefits now extend to gig workers, platform workers, and contract employees.
Schemes: Employees across sectors are entitled to PF, insurance, maternity benefits, and gratuity.
Impact: Over 400 million workers are now covered, including those in the informal economy.

6. Employer Responsibilities

Simplified Compliance: Fewer overlapping laws and digitized reporting reduce administrative burden.
Higher Obligations: Employers face increased wage bills and mandatory contributions to social security schemes.

Transition: Some dual compliance may be required until state rules fully align with central codes.

Conclusion

The new Labour Codes represent a historic shift in India’s employment landscape. With the reforms, workers gain stronger protections, better social security, and clearer rights, while employers benefit from simplified compliance while adapting to higher social responsibilities. These changes bring India closer to global labour standards, ensuring fairness, transparency, and sustainability in the workplace.

Source: https://labour.gov.in/sites/default/files/pib2192463.pdf

FAQs on New Labour Codes 2025

1. Will Full & Final (F&F) settlements be paid within 2 days under the new laws?

Yes. This is one of the most significant changes. Section 17(2) of the new Code on Wages explicitly mandates that wages and dues must be paid within two working days of an employee’s exit (whether by resignation, dismissal, retrenchment, or closure). The older corporate norm of waiting 30 to 45 days for a final settlement is no longer legally compliant.

2. Can a company pay salaries on any calendar date it chooses?

Yes, the specific date is flexible, but the payment window is not. Companies can set their own salary cycles (e.g., the 1st, 7th, or 10th of the month). However, the law mandates strict timelines once that wage period ends (e.g., monthly wages must be paid by the 7th day of the following month). Late payments now attract stricter legal penalties.

3. Will my take-home salary drop because of the new 50% basic pay rule?

The law itself doesn’t cut your salary, but your immediate take-home amount might reduce slightly due to mandatory restructuring. The new codes require your basic pay to be at least 50% of your total gross salary. If your employer has to increase your basic pay to meet this rule, your Provident Fund (PF) and gratuity contributions (which are calculated on basic pay) will also increase. This lowers your in-hand salary today but significantly boosts your long-term retirement savings.

4. Is a 12-hour workday compulsory now?

Absolutely not. The weekly working limit remains capped at 48 hours. The new laws simply allow for flexible scheduling. For example, a company and its employees can mutually agree to a 4-day workweek with 12-hour shifts. Overtime pay (at twice the normal wage rate) and mandatory rest intervals still strictly apply if standard limits are crossed.

5. Has my annual leave entitlement been reduced?

No, it has actually become easier to access. Under the Occupational Safety, Health and Working Conditions (OSH) Code, employees are now eligible for annual leave after working for just 180 days in a calendar year, significantly reduced from the previous 240-day requirement. You do not lose any leave entitlements.

6. Is gratuity now payable after just 1 year of service?

This applies only to fixed-term employees. Fixed-term workers are now eligible for pro-rated gratuity upon completing their contract, even if it is just for one year. For permanent employees, the standard qualifying period of 5 years of continuous service remains unchanged.

7. Do freelancers and gig workers automatically get PF and ESI now?

They are formally recognized under the new Code on Social Security, which is a historic first. While they don’t get traditional PF structures exactly like permanent corporate employees, the government is establishing dedicated social security funds (funded by a percentage of aggregator revenues) to provide life, disability, health, and maternity benefits to gig and platform workers.

8. Are contract workers strictly the responsibility of the third-party contractor?

No. The new codes hold the principal employer legally responsible for compliance failures. If a third-party contractor defaults on paying wages or providing benefits to contract workers, the principal employer is liable to step in and clear those dues.

9. Can companies fire employees or lay them off more easily under the new codes?

Basic employee rights, due process, and retrenchment compensation remain fully protected. What has changed is the administrative threshold for businesses: companies with up to 300 workers (previously 100) can now restructure, lay off, or close down without seeking prior government permission. However, they are still legally required to follow proper notice periods and pay severance.

10. Are the Labour Codes applicable only after full government notification?

Readiness is expected now. Waiting until state and central rules are completely aligned increases business risk. Employers should already be updating their payroll software, employment contracts, and HR policies to ensure a seamless transition and avoid heavy non-compliance penalties.