On November 21, 2025, the Government of India brought all four Labour Codes into effect, consolidating 29 fragmented central labour laws into a single unified framework. Six months in, many businesses are still catching up. Here is what has changed and what needs your immediate attention.
What Are the Four Labour Codes?
The four codes now governing employment in India are 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. Together, they replace nearly three decades of layered, often contradictory legislation.
1. The 50% Wage Rule — CTC Restructuring Is Non-Negotiable
Under the Code on Wages, "wages" must include Basic + DA + Retaining Allowance, and this component must be at least 50% of total CTC. Companies that historically kept Basic at 20–30% of CTC to reduce PF outflow are now directly exposed. The downstream impact is significant — EPF contributions, ESI eligibility, gratuity, and overtime liabilities are all calculated on the revised wage base. Top Consulting Firms estimates this could raise statutory costs by 5–15% for organisations with allowance-heavy salary structures.
2. Minimum Wages Revised Upward from April 1, 2026
The Central Government has revised Variable Dearness Allowance effective April 1, 2026, reflecting an increase of 11.28 CPI points. Monthly wages now range from approximately ₹14,000 for unskilled workers to ₹28,000 for highly skilled roles in metro areas. These revisions apply to all centrally regulated scheduled employments including construction, cleaning, and security services. Employers with contractual and unorganised workforce must update wage registers immediately.
3. Fixed-Term Employees: Gratuity from Day One
The five-year minimum service requirement for gratuity no longer applies to fixed-term employees. Under the new Code, a fixed-term worker is entitled to pro-rata gratuity from the first day of service, calculated at 15 days' wages per year. If your organisation uses fixed-term contracts, your cost model and offer letter templates need to be updated.
4. Gig and Platform Workers Now Covered Under Social Security
For the first time in Indian law, gig workers and platform workers are formally recognised under the Code on Social Security, 2020. Digital aggregators — delivery platforms, cab aggregators, and freelance platforms — are required to contribute 1–2% of annual turnover to a Central Government Social Security Fund. While contribution rates are still pending final notification, the liability framework is now law.
5. ESIC Wage Ceiling Remains ₹21,000 — For Now
The ESIC wage ceiling remains at ₹21,000 per month as of June 2026, unchanged since 2017. Industry bodies have pushed for a revision under the new Social Security Code, but no formal notification has been issued. Employers should monitor Ministry of Labour communications closely, as the Central Government now holds power to revise this ceiling without a separate legislative amendment.
What AtWork India Recommends
Review and restructure CTC across all employee categories to comply with the 50% wage rule. Update payroll software to reflect revised VDA-linked minimum wages from April 2026. Revise fixed-term employment contracts and offer letters to account for Day 1 gratuity eligibility. Document employer policy on PF contributions above the ₹15,000 ceiling. Track state-level rule notifications, as state governments continue to finalise rules under each Code.
The transition to the four Labour Codes is not a one-time exercise. It affects how you hire, pay, document, and separate employees. Businesses that build compliance into their processes now will avoid costly corrections later.
For a compliance review or advisory support, reach out to AtWork India.
📞 Jyothi: +91 99674 96587 | Yash: +91 89761 54109
📧 support@atworkindia.in |
