In force 21 November 2025
India's new Labour Codes: what US employers need to know
Four Labour Codes replaced 29 central laws from 21 November 2025. Every employment we run is structured on the new framework, not the old one.
The framework
The four Codes
Twenty-nine central laws, consolidated into four. Each Code below carries the areas it governs.
The Code on Wages, 2019
Uniform 50% wage definition, national floor wage, minimum wages, timely payment of wages and statutory bonus — the base on which all our salary structures are built.
Wages · Bonus
The Industrial Relations Code, 2020
Employment terms, standing orders, fixed-term employment at par with permanent staff, and structured dispute resolution — reflected in every contract we issue.
Contracts · Disputes
The Code on Social Security, 2020
Consolidates EPF, ESI, gratuity (now after 1 year for fixed-term staff), maternity benefit and gig-worker coverage — administered and funded for every employee.
EPF · ESI · Gratuity
The OSH Code, 2020
Occupational Safety, Health & Working Conditions: working hours, overtime on the new wage base, leave entitlements, mandatory appointment letters and annual health check-ups (40+).
Hours · Leave · Welfare
What actually changed
on 21 November 2025
India did not amend its employment law that day. It replaced it.
Twenty-nine separate central labour laws — each with its own definitions, its own thresholds and its own registers — were consolidated into four Codes. For an employer, the significant part is not the reduction in number. It is that the definitions were harmonised. Terms like “wages” that previously meant different things under different statutes now mean one thing across all four Codes.
That single change is what makes the transition expensive for employers who had optimised against the old inconsistency, and straightforward for those structuring employment from scratch afterwards.
Why the wage definition
is the whole story
If you read only one thing about the Codes, make it this.
Indian salaries were conventionally split into a modest Basic component plus a large collection of allowances — house rent, conveyance, special allowance and so on. Most statutory employer costs were computed on Basic alone. So a smaller Basic meant smaller Provident Fund contributions, smaller gratuity accruals and a smaller bonus base. The structure was legal, widespread, and the reason Indian salary slips look the way they do.
The uniform definition ends that. Basic + DA must be at least 50% of total remuneration, and where allowances exceed the other half, the excess is added back into wages anyway. There is no structure that avoids it.
Everything downstream moves as a result: Provident Fund at 12% of wages, gratuity accruing at roughly 4.81% of wages, statutory bonus within the Payment of Bonus Act threshold, leave encashment, and overtime — all now computed on a base that is at minimum half of total pay rather than whatever Basic happened to be.
What the other three
Codes change day to day
The wage definition gets the attention, but the other three Codes are where the paperwork lives.
The Industrial Relations Code governs employment terms, standing orders and dispute resolution, and it puts fixed-term employees at par with permanent staff. For a US employer that is the important line: a fixed-term contract in India is not a way to employ someone on lesser terms. It changes the duration, not the entitlements.
The Code on Social Security consolidates what used to be separate regimes — EPF, ESI, gratuity, maternity benefit — into one framework, and extends coverage to gig workers. It is also where gratuity eligibility for fixed-term staff drops from five years to one.
The OSH Code covers working conditions: working hours, overtime computed on the new wage base, leave entitlements, and two requirements that catch employers out because they are administrative rather than financial — an appointment letter is mandatory for every employee, and annual health check-ups are required for employees over 40.
The exposure this creates
for existing employers
For a company that already employs people in India, the risk is not that filings stop. It is that they continue, on time, computed on a base that is no longer correct.
A contribution made punctually against an outdated wage definition is still a shortfall. It accrues quietly, per employee, per month, and it does not announce itself — it surfaces in a due-diligence review, an inspection, or an employee query about a Provident Fund balance that does not reconcile with their payslips.
This is why our answer to the transition is structural rather than procedural. Salary structures are built on the current definition from the start, and statutory contributions are computed on that base — so there is no gap to discover later.
What is still moving
The Codes are in force, but the rules under them are not all notified yet — and labour is a subject on which both the central government and the states legislate.
In practice that means the framework is settled and the detail is still arriving, state by state. Professional Tax schedules, Shops & Establishments rules, state holidays and state-level Code rules all vary by an employee’s work location, and our compliance calendar tracks them state-wise for exactly that reason.
We track every notification as it is issued. It is unglamorous work and it is the reason our clients never carry transition risk of their own.
Implementation
How we implement them
Four changes, applied to every employment we run.
50% wage rule — salary structures rebuilt.
Under the uniform wage definition, Basic + DA must be at least 50% of total remuneration; excess allowances are added back to "wages". Our salary structures are designed on this rule from day one, so PF, gratuity, bonus and leave encashment are computed on the correct statutory base — no retrospective exposure for you.
Higher PF & gratuity — priced in, funded.
Statutory contributions now ride on the larger wage base, and gratuity liabilities have risen industry-wide. Our cost sheets show the true post-Code employer cost upfront, and gratuity is provisioned and funded through our Group Gratuity Fund — not left as an unfunded book entry.
Fixed-term employment — gratuity after 1 year.
Fixed-term employees now earn gratuity after just one year of service instead of five, with benefits at par with permanent staff. Where clients want fixed-term contracts, we structure them correctly and provision these dues from month one.
Documentation & ongoing rule watch.
Mandatory appointment letters, updated registers, overtime on the new wage base, and annual health check-ups for employees over 40. Central and state rules are still being notified — we track every notification so your employment terms never fall behind the law.
What it costs
Statutory employer costs
on the new wage base
These are set by Indian law and passed through at actuals, with proofs every cycle. They are not our fee.
Provident Fund (EPF)
All eligible employees — "wages" (Basic + DA) must be ≥ 50% of total pay under the new Labour Codes
12% of wages
Employee State
Insurance (ESI)
Employees earning up to ₹21,000/mo gross
3.25% of gross
Gratuity accrual
All employees on the new wage base — fixed-term staff eligible after 1 year; funded via our Group Gratuity Fund
≈ 4.81% of wages
Statutory bonus
Employees within the Payment of Bonus Act wage threshold
8.33% – 20% of eligible wages
Professional Tax
Per applicable state schedule
≈ ₹200/mo (state-wise)
Illustrative summary of common statutory employer costs; exact applicability depends on salary structure
and state. We give you an exact cost sheet per candidate before you commit — free.
Further reading
Guides on the Codes
FAQ
Pricing questions
Are the employees properly covered under Indian law?
Yes — written contracts, Provident Fund, ESI where applicable, TDS on salaries, and all applicable labour-law protections.
Are you compliant with India's new Labour Codes?
Yes. India's four Labour Codes came into force on 21 November 2025, replacing 29 earlier laws. All our employment contracts and salary structures follow the new uniform wage definition (Basic + DA at ≥ 50% of pay), statutory contributions are computed on the new wage base, fixed-term gratuity eligibility is provisioned from year one, and we track central and state rule notifications as they are issued — so our clients never carry transition risk.
What happens to gratuity and long-term benefits?
Gratuity under the Payment of Gratuity Act is provisioned for every eligible employee from day one — not left as a hidden future liability. We maintain an approved Group Gratuity Fund structure with a regulated insurer so these dues are funded and ring-fenced, and they're settled transparently when an employee exits or completes qualifying service.