Impact on Employers: Navigating the New Labour Code

India’s labour landscape is undergoing one of its most significant reforms in decades. The Central Government has consolidated 29 labour laws into four comprehensive Labour Code the Code on Wages, 2020, Industrial Relations Code, 2020, Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code) and the Social Security Code, 2020. Phased implementation underway: large firms (>500 employees) from FY26, medium (100-500) next, small (<100) by FY28; some states pending rules

For employers, the transition to the new regime will require careful planning, updated HR frameworks, policy revisions, and budget preparedness. The shift is not merely regulatory it will influence payroll design, workforce deployment, social security planning, and industrial relations.

Restructuring of Wage Components — Direct Business Impact

The standardized definition of “wages” is the most transformative change affecting employers. As per The New Labour Code, wage components such as basic pay, dearness allowance, and retaining allowance must form at least 50% of total compensation. If allowances exceed 50%, the excess will be added back to wages for statutory calculations.

Implications for employers:

• Higher cost of social security benefits (PF, NPS, gratuity, leave encashment)
• Greater long-term employee financial outflow
• Payroll structures that rely heavily on allowances may a require complete redesign
• Financial forecasting and budgeting must be revisited

The transition may increase employment costs, especially for organizations with lower basic-to-allowance ratios; therefore, timely restructuring is critical to remain compliant.

Work Hours, Overtime and Leave — Increased Compliance Expectations

The OSH Code enables flexibility in scheduling (e.g., 4-day workweek) but maintains the 48- hour weekly cap. Daily limits may extend to 12 hours only when weekly limits are met, subject to state rules.

Key operational changes for employers:

• Overtime must be voluntary and consentbased
• OT payment is compulsory at twice the normal wage rate
• Shift scheduling and attendance systems must be updated
• Workplace rosters applicable across sectors, not only factories

Additionally, provisions such as mandatory free annual health check-up for employees aged 40+ where notified may require organizations to set up medical vendor tieups.

Unified Social Security — Extending the Employer’s Obligations

The Social Security Code broadens the base for PF, ESIC, maternity benefits, and gratuity.

Major changes include:

• PF and ESIC coverage extended to additional categories where applicable
• Fixed-term employees become eligible for gratuity from day one
• Gig and platform workers included in the social security net—aggregator contributions to be industry-specific

Employers must therefore identify eligible categories, maintain documentation, and adjust payroll systems to ensure correct contribution mapping.

Industrial Relations — Balanced but Compliance-Heavy

The Industrial Relations Code seeks to streamline dispute resolution while safeguarding continuity of business.

Important takeaways for employers:

• Standing Orders applicability threshold rose from 100 to 300 employees
• 14-day prior notice mandatory for strike or lockout in all establishments
• Encouragement of collective bargaining and dispute prevention mechanisms

While the Code provides ease in workforce restructuring, it also demands transparent HR governance and documentation discipline.

Record-Keeping, Reporting and Digitization

The Code promotes a technology-driven compliance culture with reduced registers and a shift toward digital filings.

Companies will need to:

• Update employee registers, wage records and contractor reports
• Ensure centralized digital data management for multi-state operations
• Align annual returns and notices with new formats once notified

Non-compliance attracts stricter penalties, with multiple offences incurring gradated and even compounding fines.