Industrial Relations Code 2020 — Impact on Contract Workers in India 2026

The Industrial Relations Code 2020 – one of the four new Labour Codes – fundamentally reshapes how Indian employers can engage, retain and exit contract workers. It consolidates the Trade Unions Act, Industrial Employment (Standing Orders) Act and Industrial Disputes Act into a single statute, and introduces material changes that every principal employer and contract staffing partner must plan for in 2026.

What is the Industrial Relations Code 2020?

The Industrial Relations Code (IRC) governs employment conditions, layoffs, retrenchment, closure, trade unions and standing orders for Indian establishments. Together with the Code on Wages, Code on Social Security and OSH Code, it forms the backbone of India new labour framework. The central Code is the baseline; each state must notify its own rules.

Top 6 Changes That Affect Contract Workers

1. Fixed-Term Employment Now Formalised

The IRC introduces statutory recognition of fixed-term employment across all sectors. Fixed-term workers must receive:

Same wages, hours and statutory benefits as permanent workers in similar roles
Pro-rata leave entitlement
Gratuity after just 1 year of continuous service (versus 5 years for permanent)
Written contract specifying tenure

This creates a new compliant model that sits between traditional contract staffing and permanent hiring. Many employers are migrating project workforces to fixed-term contracts under the IRC framework.

2. Layoff/Retrenchment Threshold Raised to 300 Workers

Under the old Industrial Disputes Act, establishments with 100+ workers needed prior government approval for layoff, retrenchment or closure. The IRC raises this threshold to 300 workers. Below 300, employers can retrench with notice + retrenchment compensation (15 days wages per year served), no prior approval needed.

Implication: more flexibility for small and mid-size employers; large employers (300+) still need state approval. Many states allow exemption to this approval via state notification.

3. Standing Orders Threshold Raised to 300 Workers

Standing Orders (which govern terms of service, discipline, grievance) now apply only to establishments with 300+ workers (up from 100). Smaller establishments can follow simpler model standing orders without certification.

4. Re-Skilling Fund for Retrenched Workers

Employers retrenching workers must contribute an amount equal to 15 days wages per retrenched worker to a Re-Skilling Fund. This is in addition to retrenchment compensation. The fund supports retraining and re-employment.

5. Negotiating Union with 51%+ Support

A single union with 51%+ worker support is recognised as the sole negotiating union. Where no union has 51%, a Negotiating Council is formed. This streamlines collective bargaining for establishments with multiple unions.

6. Strike Notice Requirements Tightened

Strike notice (60 days) and prohibition during conciliation now extend to all industrial establishments, not just public utilities. Illegal strikes can lead to penalties up to Rs 10,000 per worker per day.

How the IRC Affects Contract Staffing Specifically

Area	Pre-IRC	Under IRC 2020
Fixed-term contracts	Restricted to some sectors	Permitted across all sectors
Fixed-term gratuity	5 years continuous service	1 year continuous service
Fixed-term benefits	Often less than permanent	Same as permanent for similar work
Retrenchment threshold	100 workers	300 workers
Re-skilling contribution	Nil	15 days wages per retrenched worker
Standing Orders applicability	100 workers	300 workers

Implications for Principal Employers

Audit your contract worker engagement model. Are workers truly contract or de facto permanent? IRC fixed-term may be a cleaner alternative.
Update employment contracts to align with IRC fixed-term framework where applicable.
Plan gratuity provisioning – fixed-term workers now accrue gratuity from year 1.
Review retrenchment protocols – re-skilling fund contribution is a new cost.
Track state notifications – operational date varies by state; central code is baseline.
Coordinate with your contract staffing partner on dual compliance under IRC + Contract Labour Act (now subsumed under OSH Code).

State-Wise Implementation Status

As of 2026, IRC implementation status varies:

Notified: Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, Telangana, Haryana, Punjab, Delhi
Draft stage: Maharashtra, West Bengal, Kerala

State rules can be more generous to workers but cannot dilute central protections. Differences typically appear in thresholds, exemptions, procedural forms and online portals.

Common IRC Compliance Mistakes

Continuing to treat long-term contract workers as casual when IRC fixed-term applies
Underestimating gratuity liability for fixed-term workers (1-year accrual)
Missing the re-skilling fund contribution during retrenchment
Not updating standing orders for 300+ worker establishments
Engaging contractors without IRC-aware contracts

How TMS Helps With IRC-Compliant Contract Staffing

TMS has been India contract staffing leader for 20 years and has helped 450+ employers transition to IRC-compliant workforce models. Our IRC-aware services include:

IRC-compliant contract staffing – third-party payroll with fixed-term contracts, gratuity provisioning, full statutory benefits
Payroll outsourcing aligned to IRC requirements
Statutory compliance management across all four Labour Codes including IRC
EOR services for foreign companies – we absorb all IRC compliance on your behalf
Contract redesign advisory – converting legacy contract worker engagements to IRC fixed-term where applicable
Multi-state IRC compliance tracking

Speak to a TMS IRC compliance expert

FAQs – Industrial Relations Code & Contract Workers

Are existing contract workers automatically covered by IRC?

The IRC applies prospectively to new engagements once state rules are notified. Existing contract workers continue under their existing terms unless modified.

Can contract workers under IRC fixed-term get gratuity after 1 year?

Yes. The IRC specifically grants gratuity entitlement after 1 year continuous service for fixed-term workers (versus 5 years for permanent).

Does the IRC abolish contract staffing?

No. Contract staffing remains a valid engagement model. The IRC simply formalises fixed-term as a parallel option and clarifies benefit parity requirements.