Every foreign employer with staff in India is now working out what the labour codes EOR India relationship actually looks like. First, the four Labour Codes went operational on 21 November 2025. Furthermore, the Ministry of Labour published draft Central Rules on 30 December 2025 and has been finalising them through 2026. Consequently, the compliance surface for every India-based hire, direct or through an Employer of Record, has shifted.
This guide walks foreign employers through what the labour codes EOR India stack must now cover, what your EOR partner should already have done, and where your own contracts and policies need updating. Additionally, it flags the transitions that state rules will still trigger over the next few quarters.
Labour codes EOR India: what actually changed on 21 November 2025
The government consolidated 29 older central laws into four codes:
- Code on Wages, 2019 — wage definition, minimum wages, timely payment, bonus, equal pay.
- Industrial Relations Code, 2020 — standing orders, retrenchment, layoff, unions, fixed-term employment.
- Code on Social Security, 2020 — PF, ESIC, gratuity, maternity benefit, gig worker fund.
- Occupational Safety, Health and Working Conditions Code, 2020 — safety, working hours, leave, welfare.
Every one of these codes touches an EOR arrangement because your EOR is the legal employer under Indian law. Therefore, when the codes speak of employer obligations, they speak of your EOR partner, with cost pass-through to you.
Wage structure and payroll: the biggest labour codes EOR India change
The Code on Wages introduces a unified wage definition. Basic wage plus dearness allowance plus retaining allowance must be at least 50 percent of total remuneration. Consequently, PF, gratuity, and bonus contributions all rise for any employee whose current basic sits below 50 percent of gross.
For a foreign employer, three practical points follow:
- Your EOR must restructure salary components for existing employees, ideally at the next appraisal cycle.
- Employer PF cost may rise by 10 to 20 percent for high-CTC engineers who had a low-basic, high-allowance structure.
- Full and final settlement of wages must happen within two working days of exit under Section 17(2) of the Code on Wages. Gratuity retains its 30-day timeline.
Additionally, wages must be paid by the 7th of the following month. Also, written appointment letters are now mandatory for every hire; ask your EOR to backfill these for any legacy employees onboarded via short-form contracts.
Industrial Relations Code: what foreign employers need to know
Two provisions matter most for EOR arrangements. Firstly, the retrenchment and layoff approval threshold rose from 100 to 300 workers. Consequently, most foreign employers hiring 10 to 50 India engineers sit well below the approval trigger. However, procedural notice, retrenchment compensation, and due process still apply.
Secondly, the IR Code formalises fixed-term employment on a statutory basis. Fixed-term hires get pro-rated gratuity even before completing five years. Furthermore, they must receive the same wages, hours, and benefits as permanent staff. This changes the calculus for project-based or contractor-style engagements routed through an EOR.
Social Security Code and gig workers under the labour codes EOR India setup
The Code on Social Security merges PF, ESIC, gratuity, and maternity benefit. The trigger points are unchanged: PF at 20 employees, ESIC at 10, both administered by the EOR on its own registrations. Additionally, the PF wage ceiling remains ₹15,000 basic plus DA and ESIC coverage applies up to ₹21,000 gross.
Two changes matter for foreign employers using contractors or platform workers alongside EOR engineers:
- Fixed-term contract staff now receive pro-rated gratuity from day one, not from year five.
- Aggregators (typically platform companies) must contribute 1 to 2 percent of annual turnover to a social security fund for gig and platform workers. This is a new line item for platform-model businesses.
You can verify current status on the Ministry of Labour and Employment portal.
OSH Code: hours, leave, and women employees
The OSH Code caps the working day at 8 hours and the working week at 48 hours. Overtime is allowed up to 125 hours per quarter at double the ordinary rate. Additionally, earned leave now accrues at one day for every 20 days worked, and encashment above 30 days is permitted.
Women employees can now work in all shifts, including night shifts, with written consent and safety arrangements. Consequently, if your India team runs any 24-hour support or on-call rota, ask your EOR to document the shift policy, transport, and safety measures. Furthermore, the same rules apply to remote-only roles when on-call hours are formal.
What your EOR partner should already have done
A capable EOR will have completed the following by mid-2026. Use this as a health check on your current partner.
- Rewritten appointment letter templates to reflect the Code on Wages definitions.
- Restructured salary components for all managed employees to meet the 50 percent basic plus DA rule.
- Updated payroll cut-off so wages land by the 7th of the following month.
- Built a two-working-day full and final settlement workflow.
- Refreshed leave and overtime policies against the OSH Code.
- Documented night shift policy for any women employees working outside standard hours.
- Registered on and kept current the establishment code on the Shram Suvidha portal.
- Named an Internal Committee under POSH with contact details in every appointment letter.
Labour codes EOR India state rules: the moving piece
Labour is a concurrent subject in India, so both central and state rules must sit in place before every provision can be enforced end to end. Some states have moved fast. Others are still drafting. Consequently, a few provisions will apply in Karnataka months before they apply in West Bengal, or vice versa.
For a foreign employer, this means two things. First, ask your EOR for a state-by-state tracker of where your employees sit and which rules have been notified there. Second, do not treat all-India rollout as uniform in your compliance dashboards. Your EOR should be updating monthly.
DPDP Act 2023: the compliance layer that sits alongside the labour codes
The Digital Personal Data Protection Act 2023 is not part of the Labour Codes, but it applies simultaneously to every employee data flow between your India EOR and your home entity. Consequently, your EOR must collect employee data on a lawful basis, share only what is necessary, and log access.
Furthermore, cross-border transfer of employee data (payroll files, tax records, ID documents) needs a documented data transfer agreement. Ask your EOR for their standard template and the name of their Data Protection Officer or nominated Grievance Officer.
Cost impact of the labour codes on your EOR bill
Expect a moderate increase in your all-in India EOR cost through 2026 and 2027, driven mostly by the wage restructure. Directional impact:
- Employer PF and gratuity accrual rise by 10 to 20 percent for previously low-basic salary structures.
- Backfilling appointment letters and running fresh state-level registrations may add a one-time EOR fee.
- ESIC contribution is unchanged unless the wage ceiling revises from ₹21,000 (proposed ₹30,000, not notified as of mid-2026).
- New leave accrual may raise your accrued liability by 5 to 8 percent on the balance sheet.
Additionally, factor in a modest EOR service fee increase reflecting their compliance uplift. A good partner will be transparent about the components rather than bundling them.
Frequently asked questions
Are the labour codes fully in force in 2026?
The four Labour Codes went operational on 21 November 2025. However, several provisions rely on state rules that are still being notified in phases through 2026. Your EOR should be tracking state-by-state readiness.
Does the new wage definition apply to my India engineers hired through an EOR?
Yes. Your EOR is the legal employer, so the 50 percent basic plus DA rule applies to every employee on its payroll. Consequently, expect your EOR to propose a salary restructure at the next review cycle.
What is the exit process under the Code on Wages in 2026?
Wages, including notice pay and unused leave encashment, must be paid within two working days of the last working day under Section 17(2). Gratuity retains its 30-day timeline. Your EOR handles the mechanics; you approve the settlement calculation.
Do I need to register as an employer in India if I use an EOR?
No. The EOR is the legal employer of record on its own PAN, PF, and ESIC registrations. Consequently, you do not need to register any Indian entity for hiring purposes. You may still need to register for other reasons, such as invoicing Indian customers.
What happens if my EOR is not compliant with the new labour codes?
Legal liability sits with the EOR as the employer of record. However, reputational and continuity risk sits with you. Consequently, always ask for a written note on Labour Codes and state rule readiness, and revisit vendor selection if the answers are vague.
Bottom line for the foreign employer
The labour codes EOR India relationship is now the primary compliance surface for every India-based hire in 2026. A capable EOR partner absorbs most of the mechanical work: wage restructure, appointment letter refresh, payroll timing, F&F workflow, and POSH committee. Your role is to hold them to a monthly state-rule tracker and to align your own home-entity contracts with the new expectations.
Need a Labour Codes readiness review for your India EOR arrangement? Talk to the TMS Employer of Record team for a costed compliance briefing.
