India’s New Labour Law Reforms (2026): What Employers Need to Know

Effective 21 November 2025, India has consolidated 29 labour laws into four unified Labour Codes. The most significant impact for 2026 is the 50% wage rule: at least half of an employee’s total pay must count as wages, the base for PF and gratuity. Employers whose salary structures kept basic pay low will see these statutory costs rise.

Updated October 2026: final central rules were notified in May 2026, the EPF wage ceiling rose to ₹25,000 on 17 September 2026, and the Centre expects every state to publish its rules by 31 October 2026. The status section below has the details.

The four Codes have applied since 21 November 2025. What has happened since, and what is still pending:

The central rules apply where the central government is the appropriate government, for example railways, mines, oilfields and banks. For most private employers the state government is the appropriate government, so the state rules set the detail: forms, registers, working-hour schemes and inspection procedures. If your state has not finalised its rules yet, follow its draft rules and transitional notifications closely, because that is where the final requirements will come from.

India has replaced its fragmented legacy legal system with four streamlined regulations: the Code on Wages (2019), the Industrial Relations Code (2020), the Code on Social Security (2020), and the Occupational Safety, Health and Working Conditions Code (2020). These codes provide a single national framework for employment. 

Previously, a company had to comply with nearly 30 different central laws and hundreds of state-level rules. By merging these into four pillars, the government aims to: 

• Standardize definitions: “Wages” now means the same thing for PF as it does for Gratuity. 

• Reduce compliance drag: Digital-first registrations and a single “Inspector-cum-Facilitator” model replace redundant audits. 

• Formalize the workforce: Bringing gig, platform, and fixed-term workers under a legal safety net. 

For organizations navigating this transition, utilizing an India Employer of Record (EOR) can mitigate the risk of misinterpreting these legacy-to-modern law mappings.

The 50% Wage Rule stipulates that an employee’s “Wages” (Basic Pay + Dearness Allowance) must be at least 50% of the total remuneration (CTC). If allowances like HRA or Special Allowance exceed 50%, the excess is treated as “wages” for calculating statutory contributions. 

Historically, employers kept basic pay low to reduce PF and Gratuity liability. Under the new wage code, the “wage base” for these contributions rises significantly. 

Strategic advice: run a payroll audit to model the restructuring against your annual manpower budget. For a line-by-line salary example, including the effect on take-home pay, see our New Wage Code 2026 guide.

Under the Code on Social Security (2020), fixed-term employees (FTE) are now eligible for pro-rata gratuity after just one year of service. Previously, workers typically had to complete five years of continuous service to qualify for any gratuity payout. 

The law now mandates that fixed-term employees must receive the same wages, hours, and social security benefits as permanent employees performing the same or similar work. This removes the “cost advantage” of hiring temporary staff and focuses the hiring strategy on project-based needs rather than cost-cutting. 

Yes. For the first time, India’s Code on Social Security defines gig workers, platform workers and aggregators. Aggregators, such as delivery and ride-hailing apps, must contribute 1–2% of their annual turnover to a social security fund, capped at 5% of the amount paid or payable to their gig and platform workers.

• Safety net: gig and platform workers become eligible for government-notified benefits such as life and disability cover, accident insurance, and health and maternity benefits.
• Platform responsibility: aggregators will need to register their workers on the government portal and pay contributions as the schemes become operational. Industry is still asking for detailed guidance on how registration and contributions will work in practice.

The Codes turn several practices that used to depend on the industry or the state into national requirements. The documents and policies employers need in place:

• Appointment letters for every employee, stating designation, wages and social security entitlements. This now applies to all workers, not only to specific industries.
• Salary structure and payslips that follow the 50% wages definition, with payslips in the prescribed format.
• Working hours and overtime: 8 hours a day and 48 hours a week as the standard. Overtime needs the worker’s consent and is paid at twice the normal rate of wages.
• Leave: annual paid leave once a worker has worked 180 days in a calendar year, down from 240.
• Night shifts for women: allowed in all establishments with the woman’s consent and safety measures such as safe transport and security arrangements.
• Annual health check-ups, free of charge, for workers above the age of 40.
• Fixed-term employment on the same wages and benefits as permanent staff doing the same work, including gratuity after one year.
• Grievance Redressal Committee in establishments with 20 or more workers, with women represented.
• Standing orders for industrial establishments with 300 or more workers, aligned with the Model Standing Orders, 2026.
• Exit and full-and-final settlement process that pays final wages within two working days (see the next section).

The POSH Act, 2013 sits outside the Codes but still applies: workplaces with 10 or more employees need an Internal Committee to handle sexual harassment complaints.

Under Section 17(2) of the Code on Wages, when an employee is removed, dismissed or retrenched, resigns, or loses their job because the establishment closes, the wages due must be paid within two working days. That is why it is often called the 48-hour rule.

Two points matter for payroll teams:

• The scope is still being clarified. Employers have asked whether the two-day limit covers only wages or the whole full-and-final settlement, including leave encashment and notice pay. Until state rules or official guidance settle it, the safe approach is to pay all wage-related dues within two working days.
• Gratuity has its own deadline. Under the Code on Social Security, gratuity must be paid within 30 days of becoming payable.

In the past, F&F settlements were often processed in the following month’s payroll cycle. Meeting a two-day window requires payroll that can calculate leave encashment, notice period adjustments and statutory dues by the employee’s last working day.

With the central rules final and state rules expected by 31 October 2026, employers should:

• Restructure CTC so that wages are at least 50% of total pay, and recalculate PF, gratuity and leave encashment on the new base.
• Apply the ₹25,000 EPF wage ceiling in force since 17 September 2026: check coverage for employees earning between ₹15,000 and ₹25,000 a month, and update contributions that were capped at ₹15,000.
• Track your state’s rules for registers, returns and working-hour schemes, since the state is the appropriate government for most private employers.
• Update HR documents: appointment letters and the leave, overtime, night-shift and exit policies listed above.
• Review vendor capability: confirm your payroll or EOR provider has implemented the new wages definition and the two-day deadline for final wages.

TopSource runs compliant India payroll and, for companies without an Indian entity, employs staff through our Employer of Record in India. Talk to our India team.