India’s most ambitious overhaul of employment law in seven decades is now a reality every employer must prepare for. The consolidation of 29 separate labour laws into 4 comprehensive Codes has passed through Parliament, states are progressively notifying rules, and implementation is advancing in 2026. CTC structures that worked perfectly under the old regime may now violate the uniform wages definition. Employment contracts without fixed-term employment provisions may expose companies to litigation. Organisations engaging gig workers may face new social security obligations they never budgeted for.

India’s 4 Labour Codes — Overview

Labour Code	Year	Laws Consolidated
Code on Wages	2019	Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act, Equal Remuneration Act
Industrial Relations Code	2020	Industrial Disputes Act, Trade Unions Act, Industrial Employment (Standing Orders) Act
Code on Social Security	2020	EPF & MP Act, ESIC Act, Maternity Benefit Act, Payment of Gratuity Act, BOCW Act
OSH Code	2020	Factories Act, Mines Act, BOCW Act, Contract Labour (R&A) Act, and 9 others

Code on Wages — The 50% Basic Wage Rule

The most disruptive provision: basic pay plus Dearness Allowance (DA) must constitute at least 50% of an employee’s total CTC. Under the old regime, companies could keep basic salary artificially low (20–30% of CTC) to reduce PF contributions and gratuity accruals. The new Code eliminates this structuring.

CTC Impact: Before vs After the 50% Rule

Component	Old CTC (₹60,000/month)	% of CTC	Under New Code
Basic Salary	₹15,000	25%	Must increase to ₹30,000 (50%)
HRA	₹12,000	20%	Reduces accordingly
Special Allowance	₹18,000	30%	Reduces accordingly
LTA + Medical	₹15,000	25%	Restructuring required
PF base (old)	₹15,000	—	PF base doubles to ₹30,000

When basic salary doubles from ₹15,000 to ₹30,000, the employer PF contribution increases from ₹1,800/month to ₹3,600/month per employee. Gratuity accrual rate also doubles. For a 200-person company, this is a significant annualised cost increase that must be modelled and budgeted now.

National Floor Wage

The Code introduces a national floor wage — a minimum below which no state can set its minimum wage. For multi-state employers, this creates a true national baseline. States may set wages above the floor but not below it.

Industrial Relations Code — Key Changes

Retrenchment Threshold: 100 → 300 Workers

Under the old Industrial Disputes Act, establishments with 100+ workers needed government approval before retrenchment or closure. The IR Code raises this to 300 workers. Employers with 100–299 workers now have significantly greater flexibility for workforce restructuring without prior government sanction — though procedural requirements (notice, compensation at 1 month per year of service) still apply.

Fixed-Term Employment — Now Statutory

Fixed-term employees are entitled to all statutory benefits on a pro-rata basis — including gratuity, bonus, and social security — without the five-year minimum service requirement. A fixed-term employee whose contract is not renewed is not treated as “retrenched.” This makes fixed-term contracts legally cleaner for seasonal industries, project-based businesses, and companies managing workforce flexibility.

Standing Orders Threshold: 100 → 300 Workers

The certified standing orders requirement now applies only to establishments with 300+ workers (up from 100+). Establishments below this threshold must follow model standing orders but are exempt from the certification process.

Code on Social Security — Far-Reaching Changes

Gig and Platform Workers — Social Security Mandate

For the first time, the Code formally extends social security to gig workers and platform workers. Workers engaged through app-based platforms (delivery, cab aggregators, freelance platforms) will be eligible for ESIC coverage and EPFO-style social security, with contributions shared between the aggregator platform and the government. Specific contribution rates are subject to Central Government notification — but the liability framework is now law.

Proportional Gratuity for Fixed-Term Workers — From Day 1

The five-year minimum service requirement for gratuity is eliminated for fixed-term employees. A fixed-term worker is entitled to gratuity proportional to their period of service from Day 1, calculated at the standard rate (15 days’ wages per year of service). Employers must provision for gratuity from the first day of any fixed-term engagement — not after five years.

OSH Code — One Law for 13 Acts

The Occupational Safety, Health and Working Conditions Code consolidates 13 laws including the Factories Act, Mines Act, and Contract Labour Act. Key employer obligations: annual health checks for workers in specified categories; maximum 48-hour work week with overtime at double rate; and — critically — contract workers performing the same work as permanent employees must receive equal wages and benefits. This equal pay provision directly impacts the cost arbitrage model many companies have used with contract labour.

Employer Action Checklist

Immediate (Within 30 Days)

Action	Owner	Priority
Audit all CTC structures — identify employees where basic+DA is below 50% of CTC	HR + Finance	Critical
Calculate revised PF, gratuity, and bonus financial exposure post-restructuring	Finance	Critical
Review all fixed-term contracts for updated statutory benefit language	Legal/HR	High
Map all gig/platform worker engagements across the organisation	HR + Procurement	High

Short-Term (30–90 Days)

Action	Owner	Priority
Draft/update standing orders if establishment has 300+ workers	HR + Legal	High
Model financial impact of Day 1 gratuity for all fixed-term workers	Finance	High
Initiate OSH compliance review — health check protocols, safety registers	Admin + HR	High
Assess contract labour arrangements against equal wages requirement	HR + Finance	Medium
Update state-specific rule notification tracking across all operating locations	Legal	High

How TMS Helps Employers Navigate Labour Code Compliance

With 19+ years of experience managing statutory compliance for 450+ clients across 100+ cities in India, TMS has been tracking the Labour Codes from the legislative drafting stage through parliamentary passage and state-level rule notifications. Our services include CTC restructuring advisory (audit + redesign to comply with the 50% wages rule), state-specific rule notification tracking, contract labour compliance review against OSH equal wages provisions, and fixed-term employment framework design with pro-rata statutory benefits from Day 1.

Frequently Asked Questions

Have the 4 Labour Codes come into force in 2026?

All four Codes have received Presidential assent and states are progressively notifying rules. Several states have finalised rules and enforcement is advancing. A single unified commencement date has not been issued by the Central Government — meaning employers in states that have completed rule notification must treat compliance as an immediate obligation, not a future aspiration.

Does the 50% wages rule mean we must restructure all employee CTCs?

Yes, for any employee whose basic+DA is currently below 50% of CTC, restructuring will be required once the Code is enforced in your state. This increases PF bases, gratuity accruals, and bonus eligibility. Planning now avoids a rushed restructuring under enforcement pressure — and allows time to model the full financial impact before implementation.

Are all gig workers now entitled to PF and ESIC?

The Code on Social Security creates the legal framework but specific contribution rates for gig workers depend on Central Government notification, which has not yet been issued. Employers should begin internal assessments of their gig worker population now and monitor government notifications closely.

Does proportional gratuity for fixed-term workers apply from Day 1?

Yes. Under the Code on Social Security, fixed-term employees are entitled to gratuity proportional to their service period from the first day of engagement — the five-year minimum does not apply to fixed-term employees. Financial provisioning must reflect this from the date the Code is enforced in your state.