In 2019–2020, India's parliament passed four landmark labour codes that consolidated 29 existing central labour laws into a unified framework. The codes are enacted but not yet notified for enforcement in most states — implementation is pending state-level rules. When they take effect, they will materially change how wages are defined, how working hours are structured, and how retrenchment procedures work.
This article explains what's changing, what stays the same, and what employers should be doing now to prepare.
The Four Labour Codes
The consolidation produces four codes, each covering a distinct area of employment law:
- Code on Wages, 2019 — unifies minimum wages, payment of wages, equal remuneration, and bonus legislation. Already partially in force.
- Industrial Relations Code, 2020 — covers trade unions, industrial disputes, standing orders, and retrenchment. Raises the threshold for prior government approval for layoffs from 100 to 300 workers.
- Social Security Code, 2020 — consolidates PF, ESI, gratuity, maternity benefit, and other social security laws. Extends coverage to gig and platform workers for the first time.
- Occupational Safety, Health and Working Conditions Code, 2020 — sets working hours, leave entitlements, and health and safety standards. Proposes a 12-hour workday model with a four-day work week option.
What Changes with Wage Definitions
The Code on Wages introduces a uniform definition of "wages" that will apply across all four codes. The key change: allowances cannot exceed 50% of total remuneration. The remaining 50% must be "wages" (basic + DA). This means companies that currently pay large HRA or special allowances to minimise PF contributions will need to restructure their compensation packages — which will increase PF outflows.
The 50% floor on wages means most tech company compensation structures — where basic salary is 30–40% of CTC — will need to be restructured before the codes take effect.
Working Hours and Leave
The OSHWC Code proposes capping daily working hours at 12 (up from 9–10 under current law), with a maximum 48 hours per week — but allowing a compressed four-day work week where employees work 12 hours per day. Overtime pay at double the ordinary rate is required beyond 48 hours in a week.
Annual leave accrual changes: one day of earned leave for every 20 days worked (instead of 45 under the Factories Act). Employees may carry forward up to 30 days of accumulated leave.
What Employers Should Do Now
- Audit your current compensation structures for the 50% wage floor impact
- Model the increased PF liability under the new wage definition
- Review standing orders and HR policies for alignment with the Industrial Relations Code
- Monitor state-level notifications — implementation will vary by state
Key takeaways
- Four codes consolidate 29 central labour laws — mostly not yet in force pending state rules
- The 50% wage floor will force most tech companies to restructure CTC packages
- Retrenchment approval threshold rises from 100 to 300 workers under the Industrial Relations Code
- Gig/platform workers gain social security coverage under the Social Security Code