Published Sun, 01 Feb 2026 | Updated Sun, 01 Feb 2026 Legal
Since independent India the most important labour reforms are represented by the Government of India by consolidating 29 previous labour laws into four unified labour codes. Each code focus on different aspects of the previous labour laws covering various laws into 4 simplified codes as below:-
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CODE
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EFFECTIVE DATE
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KEY FOCUS
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CODE ON WAGES,2019
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21st Nov. 2025
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Minimum wages, timely payment, wage structure standardization
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CODE ON SOCIAL SECURITY,2020
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21st Nov. 2025
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EPF, EPS, ESIC, gratuity, maternity benefit, health insurance
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OCCUPATIONAL SAFETY, HEALTH AND WORKING CONDITIONS (OSH) Code 2020
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21st Nov. 2025
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Factory safety, migrant workers, women workers, health check-ups
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INDUSTRIAL RELATIONS (IR) CODE, 2020
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21st Nov. 2025
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Trade unions, collective bargaining, dispute resolution, retrenchment
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Key Takeaways:
- Four codes subsume 29 laws into a unified, simplified framework Significant impact on gratuity liability (especially for fixed-term employees).
- Mandatory social security coverage extended to gig, platform, and unorganized sector workers.
- Requires re-evaluation of wage structures and employee benefit accounting.
- Different accounting treatment under Ind AS 19 (Companies following Indian Accounting Standards) and AS 15 (Companies following Indian GAAP).
Analysis of Key changes in the code
Key Changes in The Code on Wages, 2019
The code on wages has been introduced to create uniformity in wage regulation across whole of India.
Minimum Wage Universalization
- The Central Government is required to fix a floor wage based on the living standard of workers and their geographical location (“Floor Wage”).
- Once the Floor Wage is set, minimum wages fixed by the appropriate Government cannot be lower than the Floor Wage, even if already notified.
Wage Definition
- The New Labour Codes mandate that 'Wages' (Basic Pay+ Dearness Allowance +Retaining Allowance) must constitute at least 50%of the total remuneration.
- The scope of the definition of wages has been widened, with a detailed list of exclusions such as house rent allowance, conveyance allowance, overtime allowance, contributions paid towards provident fund, etc.
- Further, if any part of remuneration in kind is being provided, then the value of such remuneration in kind up to 15% of the total remuneration, will also form part of wages.
- The provisions relating to timely payment of wages and authorised deductions from wages, which are presently applicable only in respect of employees drawing wages of twenty-four thousand rupees per month, shall be made applicable to all employees irrespective of wage ceiling.
Key Changes in The Code on Social Security, 2020
The code on social security 2020 is covering all the statutory welfare benefits.
Changes in Gratuity Provisions
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ASPECT
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OLD RULES
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NEW RULES
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ELIGIBILITY -PERMANENT EMPLOYEE
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5 years continuous service
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5 years continuous service
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ELIGIBILITY - FIXED TERM/CONTRACT EMPLOYEE
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Not eligible for Gratuity
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1 year of continuous service
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CALCULATION BASE
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Last drawn basic salary + DA
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Last drawn wages (Basic + DA + Retaining Allowance
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New Formula for calculation of Gratuity (Post- 21st Nov 2025):
Gratuity = Last Drawn Wages × 15/26 × Years of Service
Provided also that in the case of an employee employed on fixed term employment or a deceased employee, the employer shall pay gratuity on pro rata basis. the current ceiling of INR 20 lakhs will continue to apply until modified by the Central Government.
Impact on Financials of a Company in Respect of Changed provisions
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Accounting Standard
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Accounting treatment |
| Ind AS 19 |
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Changes in Obligation due to new labour codes will be recognised as past service costs. Further actuarial gain/loss will be recognised in Other Comprehensive Income.
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| AS 15 |
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Changes in Obligation due to new labour codes will be recognised as past service costs.
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Bonus:
- The threshold for applicability of statutory bonus, which was previously payable only to employees earning up to INR 21,000 per month under the erstwhile legislation, is yet to be notified by the appropriate Governments.
- While the substantive provisions broadly mirror the erstwhile law on payment, computation and disqualification to statutory bonus, termination on the ground of sexual harassment is now identified as an additional ground for disqualification.
- The amount of statutory bonus eligible to employees will be uniform due to changes in the definition of wages. Comparison of pervious law and new law is as below:-
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Parameter
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Old System
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New Wage Code
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Definition of Wages
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No uniform definition. Basic + DA used but companies inflated allowances.
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Basic + DA + Retention Allowance must be at least 50% of Total Remuneration. Exclusions capped at 50%. Excess added back to wages.
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Key Changes to EPF:
- As per Section 164(2)(b) of the SS Code - the earlier Employees' Provident Funds Scheme, 1952, Employees’ Pension Scheme, 1995, and Employees’ Deposit Linked Insurance Scheme, 1976, will continue to be in force for a transition period of 1 year, i.e., up to November 21, 2026, by which time it is expected that the Central Government will formulate new schemes on these subjects.
- Therefore, although for the foreseeable future, until at least November 21, 2026, the existing schemes on PF, pension and EDLI (as issued under the erstwhile EPF Act) continue to operate, it is relevant to note that contributions in this regard will need to be computed on the 'wages' as defined under the SS Code.
- Earlier, once EPF/ESI became applicable, employers could not opt out. Under the new regime, employers may apply to exit EPF and/or ESI coverage or withdraw after voluntary enrolment, subject to consent of the majority of employees. This option is not available where EPF coverage is mandatory.
- EPF and ESI authorities are legally barred from initiating recovery proceedings for dues that are more than five years old. This brings certainty and finality to historical liabilities. Further, any inquiry already initiated must be concluded within two years and cannot remain pending indefinitely.
Key Changes to Leave Encashment
- Mandatory Annual Encashment: If leave balance exceeds 30 days, the excess must be encashed annually.
- Year-Round Encashment: Employees can encash accrued leave during service, not just at separation
Key Changes to ESI
- The wage threshold for coverage of employees under the employees state insurance (“ESI”) chapter is yet to be notified by the Central Government, and until such time, employers can maintain status quo by making contributions with respect to employees earning up to INR 21,000 per month.
- ESI now cover covers the gig, Platform, and unorganised worker not just traditional employees.
- While the ESI contribution rates are yet to be notified by the Central Government, the draft rules maintain the contribution rates under the old law, i.e., 3.25% as the employer’s contribution and 0.75% as the employee’s contribution.
Key Changes to Full & Final Settlement:
- Employer must complete F&F settlement within 2 working days of employee’s exit.
Maternity benefits and introduction of common crèche facility:
- The new labour codes in India, specifically the Code on Social Security mandate 26 weeks of paid maternity leave for the first two children, with 12 weeks for subsequent children or adoption.
- Establishments with 50 or more employees must provide mandatory crèche facilities, allowing four daily visits, including nursing breaks, within 500 meters of the workplace.
Conclusion
The New Labour Codes will make a significant impact on statutory obligations of employers while simplifying the legal structure. The employers need to align HR policies, contracts and compliances properly for smooth transition to new codes.
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