India's 4 New Labour Codes Explained — What Every Employer Must Know

India has consolidated 44 central labour laws into 4 new labour codes: the Code on Wages 2019 (covering minimum wage, payment of wages, and bonus), the Code on Social Security 2020 (covering EPF, ESI, gratuity, and maternity benefits), the Code on Industrial Relations 2020 (covering trade unions, industrial disputes, and standing orders), and the Occupational Safety Health and Working Conditions Code 2020 (covering workplace safety and working hours).

All 4 labour codes have been passed by Parliament and notified. Implementation is happening state by state as states frame their own rules under the codes. Several states including Rajasthan, Maharashtra, and Uttar Pradesh have already published draft rules. Employers should treat compliance as urgent regardless of their state's status.

The Code on Wages redefines wages to mean at least 50 percent of total CTC. This means allowances cannot make up more than 50 percent of the total compensation. Companies that have structured CTC with high allowances to reduce PF contributions will need to restructure salary frameworks. This will increase PF liability for many organisations.

The Code on Social Security extends social security coverage to gig workers and platform workers for the first time. It also consolidates EPF, ESI, gratuity, and maternity benefit laws into one code. Gratuity eligibility is proposed to change from 5 years to 1 year for fixed-term contract employees.

The new codes expand the definition of worker to include more categories of employees. Fixed-term employees are treated on par with permanent employees for most benefits. The codes also introduce a universal definition of wages that will affect how PF, ESI, gratuity, and bonus are calculated.