Labour Code Reforms
Labour Code Reforms: Key Changes You Should Know
Introduction
The four Labour Codes came into effect on 21 November 2025. Later, on 8 May 2026, the Central Government finalised the Central Rules for all four Codes. However, the implementation is still happening in phases because each state has to notify its own rules. So, there is no single implementation date that applies across the country.
What are the new labour codes
The implemented four labour codes are:Â
1) Code on Wages (2019)
Earlier, minimum wages were fixed only for specific, listed jobs. Now, this code ensures that every worker, in any sector, has the right to receive minimum wages and to be paid on time.Â
One of the biggest changes is the new definition of “wages”. This definition is used to calculate several statutory payments and benefits. Depending on how an employee’s salary is structured, it can affect the calculation of gratuity, leave encashment, overtime wages and notice pay.
2) Industrial Relations Code (2020)
This code brings together all rules related to trade unions, solving disputes, and rules for layoffs or factory closures. The aim is to make compliance easier by using standard terms and clear procedures.
3) Code on Social Security (2020)
This focuses on social security benefits such as PF, ESIC, and other welfare schemes. A significant change here is that gig workers and platform workers can also be covered under social security for the first time.
4) OSHWC Code (2020)
This code combines many old laws related to workplace safety and working conditions. It establishes a national standard to protect workers’ health and safety in the workplace.
Other Related Reforms in the New Labour Codes
The government has introduced labour reforms to make gratuity payments clearer and fairer for employees in all sectors. A major change is related to fixed-term workers. Earlier, gratuity was given only if an employee completed five years of continuous service before leaving the company.
Now, fixed-term employees can receive gratuity after just one year of service. This is a big change from the earlier five-year rule. Companies that hire people on short-term contracts or project-based work will now have to plan for gratuity payments more often and much earlier than before.
Benefits for Contractual Workers:Â
Fixed-term employees are now given better opportunities and protection. They will be treated more fairly, similar to permanent staff.
- Fixed-term employees will get gratuity if they complete one full year of continuous service.
- They will receive social security and legal protection, just like regular employees.
- The principal employer must provide health benefits and social security facilities to contract workers.
- Workers will also get a free annual health check-up as part of preventive healthcare.
Comparison of Pre-Labour Reforms & Post-Labour Reforms
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Before Labour Reforms |
After Labour Reforms |
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No mandatory appointment letters were given to workers. |
Appointment letters are now compulsory for every worker. This gives clear proof of employment, more transparency, and better job security. |
|
Social security coverage was limited. |
Under the Code on Social Security 2020, all workers including gig workers and platform workers will be covered. They will receive PF, ESIC, insurance, and other benefits. |
|
Minimum wages applied only to a few listed industries. Many workers were left out. |
Under the Code on Wages 2019, every worker has the legal right to receive minimum wages and timely payment. This improves their financial stability. |
|
Employers were not legally required to offer annual health check-ups. |
All workers above 40 years must be given a free annual health check-up. This promotes timely preventive healthcare. |
|
No strict rule for timely payment of wages. |
Employers must now pay wages on time. This reduces stress for workers and improves their morale. |
|
Women were not allowed in night shifts and certain types of jobs. |
Women can now work in all roles and even at night, with their consent and safety measures in place. This opens up more earning opportunities. |
|
ESIC coverage was limited to certain areas and industries. Small establishments were mostly excluded. |
ESIC will now be available across India. It is voluntary for establishments with less than 10 employees and mandatory if even one person is involved in hazardous work. |
|
Multiple registrations and returns were needed under different labour laws. |
A single registration, a single licence for all of India and one return system has been introduced. This reduces the compliance burden for employers. |
Benefits of Labour Reforms
Benefits of Labor Reforms in Key Sectors:
1. Fixed Term Employees
- Fixed-term employees will now receive the same benefits as permanent staff, such as leave, medical facilities, and social security.
- Gratuity is available after one year of service, rather than five.
- Their wages must be equal to those of permanent workers, which increases income security.
- This system will promote direct hiring by companies and reduce unnecessary contractual jobs.
2. Gig and Platform Workers
- For the first time, definitions have been given for gig work, platform work, and aggregators.
- Aggregators must contribute 1 to 2 per cent of their annual turnover towards workers’ welfare, capped at 5 per cent of the total payment made to gig workers.
- Aadhaar-linked Universal Account Number will help workers access benefits anywhere in India, even when they migrate.
3. Contract Workers
- Fixed-term employment will improve job opportunities and ensure social security similar to that of permanent employees.
- Gratuity becomes available after one year of continuous service.
- The main employer must provide health and social security benefits to contract workers.
- Free annual health check-up will be provided to all workers.
4. Women Workers
- Gender-based discrimination is legally banned.
- Equal pay for equal work is guaranteed.
- Women can work night shifts and in all sectors including underground mining and heavy machinery, but only with their consent and proper safety arrangements.
- Every grievance committee must include women members.
- Female employees can now include parents-in-law in the definition of family for dependent benefits.
5. Youth Workers
- Minimum wage is compulsory for all categories of workers.
- All workers must be given appointment letters that support formal employment and social security.
- Payment during leave is now made compulsory to prevent exploitation.
- Wages must comply with the floor wage set by the Central Government to ensure a decent standard of living.
6. MSME Workers
- Social Security Code 2020 covers all MSME workers based on the employee count.
- Minimum wage is guaranteed for everyone.
- Facilities such as canteens, drinking water, and rest areas will be provided.
- Standard working hours, double wages for overtime, and paid leave are compulsory.
- Wages must be paid on time.
7. Beedi and Cigar Workers
- Minimum wage is ensured for all.
- Working hours are limited to 8 to 12 hours per day and a total of 48 hours per week.
- Any work beyond this requires consent and has to be paid at double the normal wage.
- Wages must be paid without delay.
- Workers become eligible for a bonus after completing 30 working days in a year.
8. Plantation Workers
- Plantation workers now fall under the OSHWC Code and the Social Security Code.
- These rules apply to plantations with more than 10 workers or with an area of 5 hectares or more.
- Safety training is mandatory for handling and storing chemicals.
- Protective equipment must be provided to avoid accidents and health issues.
- Full ESI medical facilities are available for workers and their families, and education support is offered for their children.
9. Audio Visual and Digital Media Workers
- Workers such as journalists, dubbing artists, and stunt performers will receive full benefits.
- Every worker must get an appointment letter stating designation, wages, and social security details.
- Timely payment of salary is compulsory.
- Overtime work must be consent-based and paid at double the normal wage.
10. Mine Workers
- Commuting accidents will be treated as employment related under certain conditions.
- The Central Government has notified standards for workplace safety and health conditions.
- Free annual health check-ups will be given to all mine workers.
- Working hours are capped at 8 to 12 hours a day and 48 hours a week for better health and work-life balance.
11. Hazardous Industry Workers
- Free annual health check-ups are mandatory for all workers.
- National safety standards will be created for better workplace protection.
- Women are permitted in all types of work, including heavy machinery and underground mining, with proper safety measures.
- Safety committees must be formed at each site to monitor risks and chemical handling.
12. Textile Workers
- Migrant workers, whether direct, contractor-based, or self-migrated, will receive equal wages, welfare benefits, and PDS portability.
- Workers can claim pending dues for up to three years.
- Overtime work will be paid at double the wage rate.
13. IT and ITES Workers
- Salary must be released by the 7th of every month to maintain transparency.
- Equal pay for equal work is ensured, and women’s participation is encouraged.
- Women can work night shifts in all establishments, which allows higher earning opportunities.
- Disputes related to wages or harassment must be resolved quickly.
- Fixed-term employment and appointment letters will provide social security to workers.
14. Dock Workers
- All dock workers will get formal recognition and legal protection.
- Appointment letters are compulsory to ensure social security.
- Provident fund, pension, and insurance benefits will be given to both contract and temporary workers.
- Annual employer-funded health check-ups are mandatory.
- Medical facilities, washing areas, first aid, and sanitary conditions must be ensured for safe working conditions.
15. Export Sector Workers
- Fixed-term workers in the export sector will receive a provident fund, gratuity, and all social security benefits.
- Workers can take annual leave after completing 180 days of work in a year.
- Timely wage payment is compulsory, and no unauthorised deductions are allowed.
- Women are allowed to work night shifts with their consent, which opens up higher income options.
- Safety rules include written consent, double overtime wages, safe transport, CCTV security, and protective arrangements.
And with that, we have reached the end of this post on the new labour reforms. If you have any questions about this, leave them in the comments below. We are happy to help!
FAQs
Q. What is the new timeline for Full and Final Settlement?
The Labour Codes also introduce a new timeline for full and final settlement. Employers are now required to clear all pending dues within two working days after an employee leaves the organisation. Earlier, many companies followed a practice of completing the settlement within 30 to 45 days.
Q. Which rules apply during the transition period?
As per Section 6 of the General Clauses Act, 1897, the existing rules will continue to apply until the new rules under the Labour Codes are notified, as long as they do not conflict with the provisions of the Codes.
Q. What is meant by "wages" under the Labour Codes?
The definition of wages includes:
- Basic Pay
- Dearness Allowance (DA)
- Retaining Allowance, wherever applicable
If the total of other allowances and benefits is more than 50% of the total remuneration, the amount above 50% will also be treated as wages for statutory purposes.
Q. What is the 50% rule for allowances?
Under the Labour Codes, allowances and benefits, except gratuity and retrenchment compensation, should generally not exceed 50% of the total remuneration.
If they do, the amount above 50% will be added back to wages. This revised wage amount will be used for calculating statutory benefits and contributions.
Q. Is leave encashment treated as an allowance?
No. As per Section 2(y) of the Code on Wages, 2019, leave encashment is not treated as an allowance.
Q. Does the same definition of wages apply under all the Labour Codes?
Yes. A single definition of wages applies across all four Labour Codes. The same definition is used for statutory calculations wherever applicable.
Q. When is gratuity payable?
Gratuity is payable in the following situations:
- On resignation
- On retirement or superannuation
- On termination of employment
- On death or permanent disablement due to an accident or disease
- On completion or expiry of a fixed term employment contract
- In any other case notified by the Central Government
Q. Can an employee receive better gratuity benefits under an agreement?
Yes. If an employee is entitled to better gratuity benefits under an award, agreement or employment contract, those benefits will continue to apply.
Q. How will ESI coverage be governed until all the Rules are notified?
The definition of wages came into effect from 21 November 2025 with the notification of the Labour Codes. Other provisions will continue to be implemented based on the applicable rules and notifications issued by the appropriate Government.
Learn more about the latest Gratuity updates (Nov. 2025)
