Industrial Relations Code, 2020: The Employer’s Guide Now That It Is in Force

The Industrial Relations Code, 2020 took effect on 21 November 2025 with the other three Labour Codes. It rewrites the rules on hiring flexibility, dispute resolution, strikes, retrenchment and standing orders. For companies using contract staffing or third-party payroll, it also formally answers a question that used to live in a grey zone: on what terms can you engage a workforce you do not intend to keep permanently?

What the IR Code Replaced

Three central laws are consolidated into the Code:

• Trade Unions Act, 1926
• Industrial Employment (Standing Orders) Act, 1946
• Industrial Disputes Act, 1947

Key Employer Obligations Now in Force

1. Fixed-term employment is formally recognised

The Code gives statutory recognition to fixed-term employment (FTE) across sectors. A fixed-term employee must receive:

• The same wages, hours, allowances and benefits as a permanent worker doing the same work
• Pro-rata statutory benefits — including gratuity eligibility without the five-year minimum (pro-rated under the Social Security Code)
• A written contract stating the fixed term

The trade-off for employers: full parity during the term, but no retrenchment compensation when the term simply expires — the engagement ends by design, not by dismissal.

2. Standing orders — threshold raised

Certified standing orders (the formal rulebook of employment conditions) are now required for industrial establishments with 300 or more workers — raised from 100 under the old Standing Orders Act. Establishments below the threshold get more flexibility, but model standing orders remain the reference point.

3. Retrenchment, lay-off and closure — permission threshold raised

Prior government permission for lay-off, retrenchment or closure now applies to establishments with 300 or more workers, up from 100 — with the appropriate government empowered to notify a higher threshold. Below the threshold, employers can restructure with notice and compensation but without prior permission.

4. Strikes, negotiation and dispute resolution

• All strikes and lockouts require 14 days’ prior notice, in every industry; the notice is valid for up to 60 days.
• A negotiating union / negotiating council framework decides who represents workers where multiple unions exist.
• Disputes route through conciliation and a two-member Industrial Tribunal, with tighter timelines than the old Industrial Disputes Act machinery.
• A re-skilling fund is created for retrenched workers, funded by an employer contribution equivalent to 15 days’ last-drawn wages per retrenched worker, credited to the worker within 45 days of retrenchment.

5. “Worker” vs “employee” definitions

The Code’s protections attach to “workers” (a defined category based on role; supervisory staff count as workers only up to wages of ₹18,000/month or such amount as notified). Managerial and administrative employees sit outside most IR Code machinery. Classify your workforce correctly — misclassification is now easier to detect because the definitions are uniform across the Codes.

What Changes for Contract and Outsourced Workforces

Fixed-term vs contract staffing — you now have two clean instruments

Before the Codes, companies wanting a flexible workforce had messy choices. Now there are two lawful, structured routes:

1. Fixed-term employment — the worker is on your rolls for a defined term, with full benefit parity and pro-rata gratuity.
2. Contract staffing via a licensed staffing partner — the worker is on the staffing company’s rolls; the staffing company is the employer, carries the registrations, and bears the employer-side obligations.

The right choice depends on control, duration, headcount planning and how much statutory administration you want in-house. Many TMS clients run both: core project roles on FTE, flexible volume on TMS third-party payroll.

Who bears the compliance risk — you or your staffing partner?

Under the IR Code, disputes, disciplinary process, standing-orders applicability and retrenchment mechanics attach to the employer. When your flexible workforce is on TMS’s payroll:

• TMS is the employer of record for that workforce — disciplinary process, documentation, F&F and dispute handling are TMS’s statutory responsibility
• Your establishment’s worker count for standing-orders and permission thresholds is generally calculated on workers you employ — but counting questions around contract labour can be structure-specific (and differ from the OSH Code’s contract-worker counts), so take advice on your specific structure
• TMS carried all client workforces through the November 2025 transition with zero cost impact for TMS clients

Practical exposure points to check

• Engaging “consultants” who work like workers → misclassification risk under the uniform definitions
• Rolling short contracts to imitate FTE without the parity benefits → now clearly non-compliant
• No appointment letters for contract or fixed-term staff → mandatory under the Codes

Compliance Checklist — IR Code

• Classify workforce: worker vs employee vs contract labour vs FTE
• Issue written FTE contracts with term, parity benefits and pro-rata gratuity spelled out
• Check your worker headcount against the 300-worker standing orders / permission thresholds
• Update or certify standing orders if you cross the threshold
• Build the 14-day strike-notice rule and the grievance redressal committee (required at 20+ workers) into IR SOPs
• Confirm appointment letters exist for every worker, including fixed-term and contract staff
• If using staffing vendors: confirm contractually who handles discipline, disputes and F&F

The Four Labour Codes

Read this alongside the Code on Wages guide, the Code on Social Security guide and the OSH Code & contract labour guide. For the month’s deadlines, see the India HR compliance update.

Frequently Asked Questions

Is the Industrial Relations Code in force?

Yes — since 21 November 2025, along with the other three Labour Codes. State rules are being notified progressively through 2026.

What is fixed-term employment under the IR Code?

A statutorily recognised contract for a defined period with full wage-and-benefit parity with permanent workers, pro-rata gratuity, and no retrenchment compensation at natural expiry of the term.

Do fixed-term employees get gratuity before five years?

Yes. Read with the Code on Social Security, fixed-term employees earn gratuity on a pro-rata basis without the traditional five-year qualifying service.

What is the standing orders threshold now?

300 or more workers for mandatory certified standing orders, raised from 100 under the old law.

When do I need government permission to retrench?

Establishments with 300+ workers need prior permission for lay-off, retrenchment or closure. Smaller establishments follow notice-and-compensation requirements instead.

Is contract staffing still legal under the new Codes?

Fully. Contract staffing through a licensed staffing company is a recognised, regulated model — the OSH Code governs the licensing side, and the staffing company bears the employer obligations for the deployed workforce.

Should I use fixed-term employment or a staffing partner?

FTE puts the worker on your rolls with your admin burden; contract staffing puts them on the staffing partner’s rolls with the partner’s compliance burden. Most mid-size and large employers blend both. TMS can model the cost and risk of each for your case.

Fixed-Term, Contract Staffing, or Both?

The IR Code gives you real flexibility — if you structure it correctly. Get a compliance review of your workforce mix before a dispute or inspection decides it for you. Call +91-22-4896-7640