Implementation of labour codes: What changes and road ahead

The Codes introduce a standardised definition of “wages,” replacing the multiple definitions and interpretations under previous laws. This impacts calculations for benefits such as provident fund, gratuity, leave encashment, statutory bonus, overtime etc.

Leave encashment over 30 days of carry forward leave is mandated, on demand from the employee. Work hours have been defined and overtime is now payable to workers over the standard work hours, while specific rules are awaited.

Minimum wages now apply to all employees. Additionally, a national “floor wage” will be notified by the Central Government, ensuring that States do not prescribe minimum wages below this level. These measures aim to simplify compliance and guarantee a baseline income for workers across the country.

Employers are now obligated to ensure timely payment of wages. In cases of termination, whether due to removal, retrenchment, dismissal, or resignation, wages must be paid within two working days. This provision enhances financial security for workers.

Gratuity benefits have been extended to fixed-term employees who complete one year of service as compared to the five-year requirement for full-time employees. Importantly, gratuity will now be calculated based on the revised wage definition, potentially leading to retroactive financial implications for employers.

It may be noted that as an exception, the existing Employee Provident Funds and Miscellaneous Provisions Act (EPF), 1952 has however not yet been repealed. As a result, the existing EPF Act and its provisions continue to remain in force till notified otherwise.

Employees’ State Insurance (ESIC) coverage has been broadened to include establishments with fewer than ten employees on a voluntary basis. Coverage is however mandatory for industries engaged in hasardous industries, regardless of workforce size. These will help extend health and social security benefits to smaller businesses.

Employers are also required to provide free annual health check-ups for workers above a specified age, creche facilities etc. constitute safety committee in certain cases, reinforcing the focus on worker well-being.

Social security coverage has now been extended to gig and platform workers, formally recognising their role in the economy, while detailed benefits in this regard are yet to be notified.

There are revised definitions of contract labour and a prohibition to engage contract labour in core activities of a business, subject to exceptions. Also, the wages/ benefits to them have been aligned with permanent employees, while making the principal employer liable for wages, benefits etc.

The threshold for requiring government approval for lay-offs, retrenchments, or closure of establishments has been raised from 100 workers to 300 workers. This change provides greater operational flexibility for employers while maintaining oversight for larger establishments.

The classification of individuals as either employees or workers, which determines their rights, entitlements, and obligations is now of paramount importance.

The Codes mandate issuance of appointment letters to all employees with specified details, including those in informal roles, thereby formalising employment relationships.

Women can now work in all establishments and during night shifts, subject to consent and safety measures. This change promotes gender equality and inclusion, removing previous restrictions on women’s employment in certain sectors.

While the Codes are effective 21 November 2025, final Central and State rules are yet to be notified, which may clarify aspects such as such as minimum wages, threshold for statutory bonus, gratuity limits, working hours and overtime. Until then, existing rules and regulations will continue, provided they do not conflict with the Codes. Informal sources have indicated that draft rules will be pre-published shortly, with a 45-day public consultation window–a critical opportunity for stakeholders to shape a clear compliance framework and minimise future litigation.

In the meanwhile, this transition period, presents its own set of challenges. This overlap and interplay of Central and State rules may create some confusion among employers regarding which provisions to comply with. The industry also awaits clarification and guidance on some critical aspects such as interpretation of the wage definition which is the basis for calculating all statutory benefits and coverage. Clear guidance on transitional provisions will be essential to avoid inadvertent non-compliance and penalties.

To navigate this complexity, organisations must undertake a thorough analysis of the impact of the new codes on their operations. They should review wage structures, financial impact, manpower arrangements, existing compliance processes. They should carry out a review of their HR processes and policies etc. to come to a state of readiness.

Despite the inevitable transitional challenges that accompany reforms of this magnitude, the Labour Codes mark a progressive and transformative shift - simplifying compliance, strengthening worker welfare, fostering inclusivity and aligning India’s labour framework with global standards. The success however will hinge on seamless implementation, harmonised rules and a shared commitment between the policy makers and industry to build a fair and sustainable employment ecosystem.

A version of this article appeared in The Economic Times Online on December 11 2025. The same can be read here