India New Labour Codes 2026 — What Employers Must Know

India New Labour Codes 2026 — What Employers Must Know

India has replaced 44 central labour laws with 4 comprehensive Labour Codes. The Codes have been passed by Parliament but implementation is state-by-state — some states have operationalised certain Codes, while others are still drafting rules. Employers must prepare for the transition now: the Codes change wage definitions, PF computation bases, working hour limits, and compliance procedures.

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The 4 Labour Codes

1. Code on Wages 2019
Consolidates: Minimum Wages Act, Payment of Wages Act, Equal Remuneration Act, Payment of Bonus Act

Key changes:
- Universal minimum wage: national floor wage applicable across all scheduled employments
- Simplified wage definition: "wages" = basic pay + DA + retaining allowance (only)
- All other allowances capped at 50% of total wages — effectively means Basic must be 50% of CTC
- Digital payment of wages: cash payment permitted only where digital infrastructure unavailable
- Enhanced bonus coverage: threshold may be revised

What it means for payroll:
If Basic + DA is currently less than 50% of CTC (common in IT companies where HRA and allowances dominate), the Code requires restructuring. This also increases PF contribution since PF is computed on wages (Basic + DA).

2. Industrial Relations Code 2020
Consolidates: Trade Union Act, Industrial Employment (Standing Orders) Act, Industrial Disputes Act

Key changes:
- Retrenchment threshold: notice of change only required for establishments with 300+ workers (currently 100)
- Fixed-term employment: explicitly recognised — FTE workers get same benefits as permanent workers pro-rata
- Reskilling fund: employer contributes 15 days wages to reskilling fund on retrenchment
- Worker definition: threshold for worker increased to Rs. 18,000/month

3. Social Security Code 2020
Consolidates: EPF Act, ESI Act, Maternity Benefit Act, Gratuity Act, Building Workers Act, and others

Key changes:
- Gig and platform workers: social security provisions applicable — significant for companies using gig workforce (Swiggy, Ola, Uber model)
- Aggregator levy: e-commerce aggregators to contribute 1-2% of annual turnover to gig worker social security fund
- ESIC coverage: possibility of extending coverage beyond Rs. 21,000 threshold
- Gratuity for fixed-term: payable after 1 year of service (not 5 years) for fixed-term employees
- Inter-state migrant workers: enhanced social security coverage

4. Occupational Safety, Health and Working Conditions Code 2020 (OSH Code)
Consolidates: Factories Act, Mines Act, Building and Other Construction Workers Act, Plantations Labour Act, and others

Key changes:
- Coverage threshold: applicable to establishments with 10+ workers (with electricity) or 20+ (without electricity)
- Working hours: maximum 8 hours per day, 48 hours per week (no change from Factories Act)
- Annual leave: uniform earned leave calculation — 1 day per 20 days worked (existing Factories Act rate)
- Contract labour: comprehensive regulation of contract labour under single framework
- Inspector-Cum-Facilitator: inspectors can advise on compliance, not just penalise — softer approach

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PF Computation Impact

Code on Wages' 50% wage rule directly impacts PF:
- Current: Company pays 12% PF on Basic of Rs. 20,000 = Rs. 2,400/month per employee
- Post-Code: If CTC is Rs. 50,000, Basic must be Rs. 25,000 (50%) → PF = 12% of Rs. 25,000 = Rs. 3,000/month
- Impact: +25% increase in PF contribution per employee for companies currently under-indexing Basic
- ESIC impact: similar increase in ESI base for covered employees

For a company with 200 employees at average CTC of Rs. 50,000 → additional PF cost of Rs. 1.2 lakh per month. Significant operational budget impact.

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State-by-State Implementation Status

As of 2026, implementation is staggered:
- Code on Wages: most states have drafted rules, some have notified — apply state-by-state
- IR Code: fewer states have operationalised
- Social Security Code: gig worker provisions await central framework
- OSH Code: building on Factories Act infrastructure in most states

Employers must monitor their state government gazette for notification dates.

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How MICS HRMS Prepares You

- Wage restructuring analysis: MICS analyses current salary structures and simulates post-Code impact
- PF base increase: MICS can recompute PF on the Code-compliant wage base
- Fixed-term employment: MICS tracks FTE workers and computes benefits on pro-rata basis
- Gig worker tracking: if company uses gig workers, MICS can track for Social Security Code compliance readiness
- State-wise compliance: MICS monitors state notifications and updates compliance rules

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Pricing

- Labour Codes readiness assessment: Rs. 25,000 one-time (salary structure analysis + PF impact + recommendations)
- HRMS configuration for Code compliance: included for MICS HRMS subscribers
- Annual labour law update service: Rs. 15,000/year (state notification monitoring + HRMS configuration updates)

Free Labour Codes consultation: +91 9355273535 | admin@mics.asia