Understanding India's Four Labour Codes — What Actually Changed

Here's what the four Codes actually are, what's changed in practice, and what's still in motion.

The four Codes, in plain terms

1. Code on Wages, 2019

Consolidates minimum wage, payment of wages, bonus and equal remuneration law into one Code. It also introduces a single, uniform definition of "wages" that now applies across PF, ESIC, gratuity and bonus calculations — more on why that matters below.

2. Industrial Relations Code, 2020

Covers standing orders, retrenchment, layoffs and dispute resolution. It raises the threshold for standing orders and government permission for layoffs/retrenchment from 100 to 300 employees at an establishment — a meaningful change for growing mid-size manufacturers.

3. Code on Social Security, 2020

Brings PF, ESIC, gratuity, maternity benefit and — for the first time — social security provisions for gig and platform workers under one Code.

4. Occupational Safety, Health and Working Conditions Code, 2020

Governs working hours, shift limits, welfare facilities and safety standards, and extends coverage to establishment types that weren't clearly covered before, including some categories of contract and inter-state migrant workers.

The change that actually hits your payroll: the new wage definition

The Code on Wages standardises how "wages" is defined for statutory purposes. The practical effect: Basic pay plus Dearness Allowance must add up to at least 50% of an employee's total remuneration. If allowances (HRA, special allowance, and similar components) push Basic below that 50% mark, the excess gets added back to "wages" for PF, gratuity and ESIC calculation purposes anyway.

This closes a structuring pattern a lot of Indian companies used — keeping Basic artificially low and allowances high to reduce statutory contribution liability. If your salary structures were built that way, your PF and gratuity base goes up under the new definition, even though the 12% PF rate itself hasn't changed.

What this means in practice: a CTC structure that was compliant and cost-efficient under the old rules may now be quietly under-compliant. This is worth an actual audit of your salary structures, not an assumption that nothing changed because the headline rate didn't move.

What hasn't changed yet

The Codes are in effect, but the detailed rules under them — the state-level notifications that fill in implementation specifics — are still being issued in phases. Under the "Repeal and Savings" clause common to all four Codes, the rules framed under the 29 repealed central laws continue to apply until the corresponding new rules are notified. Where the old rules and the new Code conflict, the Code prevails.

In practice, this means compliance right now is a moving target: the broad framework is set, but state-by-state implementation is still catching up, and it will keep catching up through 2026.

What HR and payroll teams should actually do

1. Audit current salary structures against the 50%-of-remuneration Basic+DA rule — don't assume last year's structure still holds.
2. Track state-level rule notifications for every state you operate in, not just headquarters.
3. Re-check standing order and retrenchment thresholds if your headcount is approaching 300 at any single establishment.
4. Don't wait for a single "final" notification — the rollout is genuinely phased, and treating it as a one-time update will leave gaps.

This is general information about Indian payroll and statutory rules, not legal or tax advice. Rules are still being notified state by state — check your own position with your consultant before you act on it.