New Labour Code 2025 Explained: Important Changes Every Employee Should Know

India’s workplace rules are changing in one of the biggest reforms the country has seen in decades. The new labour code, a consolidated framework that replaces 29 old laws with four modern codes, aims to simplify how companies operate and strengthen protections for workers. For employees, HR teams, gig workers, and even small businesses, understanding the labour code is no longer optional; it directly affects salary structure, PF contributions, overtime, working hours, leave, gratuity, and even work-from-home policies.

Until now, labour laws were scattered, confusing, and often outdated. The new system promises clearer definitions, uniform standards, fewer compliances, and broader social security.

But with these changes also come questions: Will take-home salary be reduced? Who gets early gratuity? How will the 4-day work week actually work? What about gig and platform workers? And what responsibilities do employers need to prepare for?

This blog breaks down every major change in a simple, structured, and practical way so that anyone, whether a salaried employee or a business owner, can understand what the new labour code really means in daily life.

What Are the New Labour Codes?

India has replaced 29 separate labour laws with four major labour codes. The goal is to make workplace rules easier to understand, easier to comply with, and more relevant to today’s work culture. Instead of navigating dozens of older Acts, employees and employers now have one unified system that covers wages, social security, workplace safety, and industrial relations.

Below is a simple breakdown of each code and what it deals with:

Code on Wages, 2019

This code merges four different wage-related laws into one.

It sets a single, clear definition of “wages,” introduces a national floor wage, ensures timely salary payments, and promotes equal pay for equal work. It also expands minimum wage protection to more categories of workers across India.

Industrial Relations Code, 2020

This code deals with hiring, firing, layoffs, worker unions, and dispute resolution. One major change is that companies with up to 300 workers can hire or let go employees without prior government approval, a move aimed at giving businesses more flexibility while keeping dispute processes structured.

Code on Social Security, 2020

This code brings PF, ESI, maternity benefits, gratuity, and insurance under one umbrella.

For the first time, gig workers and platform workers are also recognised for social security benefits, a big step toward formalising the digital gig economy.

Occupational Safety, Health & Working Conditions (OSHWC) Code, 2020

This code focuses on workplace safety, working hours, welfare facilities, and working conditions across industries.

It recognises night-shift work for women with safeguards, simplifies multiple licenses into a single registration, and strengthens health and safety standards for employees.

Why India Needed the New Labour Code

For decades, India’s labour laws were spread across different Acts, many of which dated back to the pre-independence era. They were written for a very different kind of economy and workplace. As a result, companies struggled with compliance, workers struggled with clarity, and both sides often faced unnecessary delays, paperwork, and disputes.

The new labour code was introduced to solve these long-standing issues and bring India’s labour system in line with modern workplaces, digital platforms, and today’s flexible work models.

Here’s why the overhaul was needed:

Too many laws, too much confusion

There were 29 central laws covering wages, social security, hiring policies, working hours, industrial disputes, and more. Each had different definitions, requirements, and procedures. Companies had to maintain multiple registers, fill multiple forms, and follow repetitive processes.

Outdated rules for a changing workforce

The rise of gig workers, platform workers, hybrid jobs, and contract roles highlighted gaps in the old system. Many workers had no clear protections or benefits.

Delays in wage payments and settlements

Old laws did not define timelines clearly, causing delays in full-and-final settlements and wage disbursal.

Need for simpler compliance for businesses

Multiple inspections, licences, and returns slowed down business operations. The new codes reduce these layers to promote ease of doing business.

Need for stronger and fairer worker protections

The government wanted a more uniform system where workers across sectors received minimum wage protection, fair working conditions, and timely access to benefits.

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Biggest Changes Under the New Labour Code

The new labour code introduces some of the most practical, day-to-day changes that directly affect your salary, PF, working hours, leaves, job security, and benefits. Here’s a clear breakdown of what actually changes for employees and employers.

New Salary Structure: Higher Basic Pay, Higher PF, Different Take-Home

The labour code fixes a new definition of “wages.” This means your basic salary must be at least 50% of your total CTC.

What it means to you:

• PF contributions may increase
  
  
• Gratuity value goes up
  
  
• Take-home salary may change depending on your company’s structure
  
  

Four-Day Work Week Option

You may soon work 4 days a week, but your daily working hours can go up to 12 (with consent).

The weekly cap of 48 hours stays the same. Overtime must be paid at 2x the wage rate.

Faster Salary Payments & Faster Full-and-Final Settlements

The new rules ensure:

• Timely wage payment
  
  
• Clear, shorter timelines for final settlements after an employee leaves
  
  

This removes ambiguity that existed for years.

Early Gratuity for Fixed-Term Employees

Earlier, gratuity required 5 years of service.

Under the new labour code, fixed-term employees can get gratuity after just 1 year, a major benefit for contract workers, freelancers hired on contract, and project-based employees.

Social Security for Gig & Platform Workers

For the first time ever, workers of app-based platforms like ride-sharing, delivery, home services, and freelance marketplaces will be covered under social security schemes.

This includes:

• Insurance
  
  
• PF-like benefits (through aggregator contributions)
  
  
• Welfare funds
  
  

National Floor Wage Across India

A uniform national wage floor ensures every state must pay at least a minimum guaranteed level.

No employee can be paid below this threshold.

This gives better protection to workers in states with historically low minimum wages.

Work-From-Home Rules Get Recognition

The new labour code allows companies to officially frame WFH and hybrid work policies.

This includes clarity on:

• Working hours
  
  
• Attendance
  
  
• Equipment support
  
  
• Reporting structure
  
  

Earlier, there was no formal mention of WFH in labour laws.

Women Can Work Night Shifts with Safety Measures

Women can now legally work night shifts across sectors, provided companies ensure:

• Transport facilities
  
  
• Security protocols
  
  
• Safe working environment
  
  

This opens opportunities in IT, manufacturing, retail, and logistics.

Single Licence for Contractors

Companies that work with contractors can now use one national licence instead of multiple state licences, cutting down a huge amount of paperwork.

Simplified Compliance for Employers

The new codes significantly reduce:

• Registers
  
  
• Returns
  
  
• Inspections
  
  
• Multiple overlapping rules
  
  

This helps businesses operate smoother while still ensuring worker protection.

Clearer Rules for Hiring, Firing & Layoffs

The Industrial Relations Code updates thresholds for:

• Retrenchment
  
  
• Closure
  
  
• Layoffs
  
  

Companies with up to 300 employees can make certain employment decisions without prior government approval. This change aims to balance flexibility for employers and predictability for workers.

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Who Benefits the Most From the New Labour Code?

The new labour code impacts every part of India’s workforce, but some groups gain more direct benefits than others. Here’s a clear look at who stands to benefit the most from these reforms.

Salaried Employees in the Organised Sector

If you work in a company with structured payroll, the new rules bring more clarity and stronger protections.

How you benefit:

• More predictable salary structure
  
  
• Higher PF and gratuity over the long term
  
  
• Faster final settlements
  
  
• Better clarity on working hours and overtime
  
  
• Minimum guaranteed standards across states
  
  

Overall, the system becomes more transparent.

Contract and Fixed-Term Employees

Earlier, contract workers often missed out on benefits that permanent employees received.

The new rules fix this.

Major gains:

• Gratuity after 1 year (not 5 years)
  
  
• Equal treatment of wages and benefits
  
  
• Formal appointment terms
  
  

This brings stability for project-based talent.

Gig and Platform Workers

This is one of the biggest breakthroughs.

For the first time, delivery partners, ride-share drivers, home-service workers, and other gig workers are recognised as part of India’s social security system.

They benefit through:

• Insurance coverage
  
  
• Welfare funds
  
  
• Aggregator contributions to social security
  
  

It gives them a safety net they never had before.

Women Employees

The new labour code opens more opportunities for women across industries.

Benefits include:

• Legal permission to work night shifts
  
  
• Employer responsibility for safety and transport
  
  
• Stronger health and safety norms
  
  

This especially helps sectors like IT, retail, hospitality, aviation, and manufacturing.

Work-From-Home & Hybrid Employees

For the first time, WFH is formally recognised.

This means:

• Clear rules for remote working hours
  
  
• Defined responsibilities
  
  
• Smooth handling of attendance and reporting
  
  

This gives structure to a model that exploded after the pandemic.

Employers, Startups & MSMEs

The codes reduce complexity and help businesses operate with fewer barriers.

Benefits include:

• Single national licence for contractors
  
  
• Fewer registers and returns
  
  
• Simplified inspections
  
  
• More flexibility in hiring and manpower planning
  
  

This improves ease of doing business, especially for growing startups.

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What Changes for Employers Under the New Labour Code?

The new labour code doesn’t just affect employees, it also reshapes how companies manage salaries, compliance, hiring policies, work hours, and workplace safety. For employers, this is a shift toward clearer rules but also higher responsibility in certain areas.

Here’s a simple breakdown of what changes for businesses, HR teams, and MSMEs:

New Salary Structure & PF Calculations

The biggest immediate change is the 50% rule. Basic pay must form at least half of an employee’s total CTC.

For employers, this means:

• Reworking salary structures
  
  
• Possible increase in PF contributions
  
  
• Clearer, uniform wage definition across the organisation
  
  

Payroll teams will need to adjust CTC templates accordingly.

Faster Full-and-Final Settlements

Companies must follow clear timelines for paying final dues when an employee exits.

This improves transparency and reduces disputes, but also requires HR to update internal processes.

Greater Flexibility in Hiring & Retrenchment

Companies with up to 300 employees can hire or retrench staff without prior government approval.

Impact:

• Faster manpower decisions
  
  
• Less administrative bottlenecks
  
  
• Predictable rules for restructuring
  
  

This is especially useful for startups and mid-sized firms.

Single Licence for Contractors

Previously, businesses needed separate licences for different states. Now, the new labour code introduces one national licence.

Benefits:

• Lower paperwork
  
  
• Faster onboarding of contractors
  
  
• Simplified compliance across multiple locations
  
  

Reduced Registers, Returns & Inspections

The codes aim to cut down multiple overlapping filings.

This means:

• Fewer registers to maintain
  
  
• Consolidated returns
  
  
• More transparency but less duplication
  
  

It saves time for compliance officers and HR teams.

Clear Rules for Work From Home (WFH) Policies

Companies can now frame official WFH guidelines.

HR must define:

• Working hours
  
  
• Attendance norms
  
  
• Data security measures
  
  
• Reporting processes
  
  

This brings structure to remote setups.

Higher Duties for Health, Safety & Welfare

Under the OSHWC Code, employers must ensure:

• Better workplace safety
  
  
• Free annual health check-ups (for eligible categories)
  
  
• Sanitation and welfare facilities
  
  
• Safety measures for women working night shifts
  
  

These are mandatory compliances, not optional.

Social Security Responsibilities

Employers need to prepare for:

• Revised PF/ESI coverage
  
  
• Potential contributions for gig/platform workers (if applicable)
  
  
• Digital record-keeping
  
  

This will gradually become more standardised as rules roll out.

State-Level Implementation: What Employers Should Actually Expect

Even though the new labour code has been notified at the central level, the real-day implementation depends on how quickly each state notifies its own rules. This means that while the overall framework is the same across India, some practices may vary from one state to another during the initial transition period.

Here’s what employers should realistically expect:

Central Codes Are In Force But States Must Finalise Their Rules

The centre has consolidated the laws, but states must frame detailed guidelines on:

• Working hours
  
  
• Leave policies
  
  
• Overtime limits
  
  
• Safety norms
  
  
• Shops & establishment alignment
  
  
• Local inspection mechanisms
  
  

Until this happens, companies may see differences between states in how certain rules are applied.

Expect a Transition Phase

For a few months, HR teams may deal with:

• Mixed compliance environments
  
  
• Gradual updates from state labour departments
  
  
• Different interpretations of wage definitions and working hour structures
  
  
• New formats of registers and returns rolling out slowly
  
  

This is normal when a large reform is introduced.

Companies Operating in Multiple States Need a Unified Approach

Businesses with offices in several states must prepare a central policy that can be adapted locally.

Recommended strategy:

• Draft a uniform organisation-wide policy based on the central labour code
  
  
• Add state-specific requirements as they get notified
  
  
• Train HR teams and payroll managers in each region
  
  

This prevents compliance gaps.

More Digital Processes & Fewer Physical Inspections

States are expected to move toward:

• Online registrations
  
  
• Digital records
  
  
• Computerised inspections
  
  
• Randomised inspection systems
  
  

This is aimed at reducing physical visits and increasing transparency.

Early Variations Will Stabilise Over Time

Initially, a few rules may differ by state.

However, once all states fully align their rules with the new labour code, India will have one of the most standardised labour systems it has ever seen.

For now, companies should stay updated with circulars from:

• State labour ministries
  
  
• State Shops & Establishments departments
  
  
• Local notification dashboards
  
  

Best Practice for Employers Right Now

To avoid confusion in the transition phase:

• Follow the central guidelines as the baseline
  
  
• Keep track of state updates monthly
  
  
• Update standing orders and HR manuals in phases
  
  
• Consult compliance partners for multi-state operations
  
  
• Avoid rushing major restructures until state rules settle
  
  

This balanced approach ensures smooth implementation without legal risks.

What Employees Should Do Now

The new labour code changes how salaries, PF, working hours, and benefits work. To make sure you’re prepared, here’s a quick, practical checklist that any employee can follow whether you’re in a corporate job, contract role, startup, or gig-based work.

Check Your Salary Breakup Carefully

Your basic salary must now form at least 50% of your total CTC. This affects:

• PF contribution
  
  
• Take-home salary
  
  
• Gratuity value
  
  
• Overtime calculation
  
  

If your salary structure changes, understand how your take-home and long-term benefits will be impacted.

Confirm PF and Gratuity Updates

Ask your HR or payroll team:

• Has PF contribution changed under the new wage definition?
  
  
• Are you eligible for gratuity sooner (especially if you’re a fixed-term employee)?
  
  

This ensures transparency in long-term financial benefits.

Understand Your Company’s Working Hours Policy

Check if your organisation is:

• Considering a 4-day work week
  
  
• Implementing new shift structures
  
  
• Updating overtime rules
  
  

Knowing this helps you plan your work-life routine better.

Ask for a Formal Appointment Letter

The new labour code makes appointment letters mandatory. This document clearly defines:

• Role
  
  
• Compensation
  
  
• Working hours
  
  
• Leave policies
  
  
• Termination rules
  
  

If you don’t have one, request it, it protects you legally.

Understand WFH or Hybrid Rules

If your job involves remote work, check:

• New attendance requirements
  
  
• Communication protocols
  
  
• Performance expectations
  
  
• Support for equipment or internet
  
  

WFH now has clearer recognition in law, so policies may change.

Track Social Security Benefits (Especially for Gig Workers)

If you work for a platform such as a delivery app or service marketplace:

• Look for updates on insurance
  
  
• Check whether the platform contributes to welfare/social security funds
  
  
• Understand the protections now available under the new labour code
  
  

This gives you a safety net you didn’t have before.

For Women Employees: Check Night Shift Policies

If your organisation offers night shifts:

• Ensure transport facility is provided
  
  
• Confirm workplace safety measures
  
  
• Check if HR has updated night-shift guidelines
  
  

Your safety obligations are legally backed.

Review Your Full-and-Final Settlement Process

If you plan to resign or have recently exited a job:

• Expect quicker settlements
  
  
• Know the new timeline your company must follow
  
  
• Keep documents like resignation email, payslips, and clearance forms handy
  
  

This reduces the chances of delay or confusion.

Keep Personal Records Updated

Maintain copies of:

• Salary slips
  
  
• Appointment letters
  
  
• Revised contracts
  
  
• PF/ESI details
  
  
• Working hour approvals (if on shift system)
  
  

These documents are useful if any dispute arises.

What Companies Should Do Now

The new labour code brings several structural changes, and companies need a clear action plan to stay compliant while ensuring smooth HR and payroll operations. Here’s a simple, practical checklist employers can start using immediately.

Rework Salary Structures Across All Roles

The first and most urgent task is applying the 50% basic salary rule.

Action steps:

• Redesign CTC templates
  
  
• Update offer letters and appointment letters
  
  
• Inform employees about changes to PF, gratuity, and take-home pay
  
  
• Test payroll runs under the new structure
  
  

This keeps salary calculations compliant and transparent.

Update HR Manuals, Standing Orders & Company Policies

Every major HR document will need revisions.

What to update:

• Working hours and shift schedules
  
  
• Overtime policy (double wages)
  
  
• Leave policies
  
  
• WFH/remote working rules
  
  
• Night shift policy for women
  
  
• Health, safety and welfare compliance
  
  

Consistency in documentation protects the company during audits.

Prepare for Faster Full-and-Final Settlements

With stricter timelines now mandated, HR must streamline the exit workflow.

Action steps:

• Rework internal approval chains
  
  
• Automate clearances from teams
  
  
• Coordinate payroll, finance, and HRMS
  
  
• Train teams on new timelines
  
  

This prevents non-compliance and reduces disputes.

Set Up Systems for Social Security Compliance

The new labour code expands the scope of PF, ESI, gratuity, and gig-worker coverage.

Action steps:

• Review PF and ESI eligibility
  
  
• Recalculate employer contributions
  
  
• Prepare for platform/gig worker contribution frameworks (as relevant)
  
  
• Ensure digital records for all statutory filings
  
  

Digital-ready compliance is now essential.

Strengthen Workplace Safety & Annual Health Check-Up Processes

The OSHWC code increases employer responsibility around safety.

Companies must:

• Provide annual health check-ups for eligible categories
  
  
• Ensure compliance with welfare facilities (canteens, sanitation, etc.)
  
  
• Implement safety protocols for women on night shifts
  
  
• Maintain digital logs of safety audits
  
  

This reduces compliance risk and improves workplace trust.

Align Multi-State Operations Under One Framework

Companies that operate in several states must watch for state-specific notifications.

Action steps:

• Draft a central master policy aligned with the new labour code
  
  
• Add state-level clauses as states notify their rules
  
  
• Hold training sessions for HR heads across regions
  
  

This prevents misalignment and legal exposure.

Use the Single National Licence for Contractors

Businesses relying on contract labour can significantly reduce compliance load.

Action steps:

• Apply for the new national licence
  
  
• Consolidate contractor documentation
  
  
• Standardise onboarding and compliance processes across states
  
  

This simplifies vendor management.

Conduct HR & Compliance Training

Teams must fully understand the new system.

Training topics:

• Wage definition
  
  
• Working hour rules
  
  
• Gratuity changes
  
  
• PF/ESI changes
  
  
• Safety norms
  
  
• Exit process timelines
  
  

Trained teams make fewer compliance mistakes.

Create a Transition Calendar

Since state rules will be notified gradually, a structured calendar helps stay prepared.

Suggested monthly activities:

• Review state notifications
  
  
• Update policies
  
  
• Conduct audits
  
  
• Refresh payroll templates
  
  
• Document changes for future reference
  
  

Communicate Transparently With Employees

Clear communication reduces confusion and builds trust.

How to communicate:

• Townhalls explaining wage changes
  
  
• Email FAQs
  
  
• HRMS pop-ups for salary structure updates
  
  
• One-on-one guidance for impacted employees
  
  

Good communication protects company culture during transitions.

Final Takeaway

The new labour code marks one of India’s biggest steps toward modernising how workplaces function. For decades, employees and companies operated under a patchwork of 29 different laws that often created confusion, inconsistent standards, and long compliance cycles. By bringing them together into a unified labour code, India has moved toward a system that is clearer, more predictable, and more aligned with today’s workforce needs.

For employees, the reforms mean stronger social security, transparent salary structures, faster settlements, and fairer working conditions. For gig workers and fixed-term hires, it finally brings legal recognition and long-awaited benefits. For employers, it simplifies compliance, standardises processes, and reduces administrative friction.

Of course, the true impact will unfold gradually as states notify their rules and companies update their policies. But the direction is clear. India is moving toward a labour environment that balances worker protection with business flexibility.

In the months ahead, staying informed, adapting policies early, and understanding your rights and responsibilities will help both employees and companies make the most of the new labour code’s promise.

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