India’s four Labour Codes — the Code on Wages, the Code on Social Security, the Industrial Relations Code, and the Occupational Safety, Health and Working Conditions Code — came into effect on 21st November 2026, replacing 29 older central labour laws with a consolidated framework. For employers, the practical changes include an expanded ESI coverage definition, a stricter wage definition that limits how low basic pay can be structured relative to CTC, a mandatory 2-working-day final settlement rule for exiting employees, and mandatory digital record-keeping for attendance, wages, and statutory registers.
In This Guide:
- 1. Why Four Codes Instead of 29 Separate Laws
- 2. Code on Wages — What Changed
- 3. Code on Social Security — What Changed
- 4. Industrial Relations Code — What Changed
- 5. Occupational Safety, Health and Working Conditions Code — What Changed
- 6. The Practical Payroll Checklist
- 7. Frequently Asked Questions
1. Why Four Codes Instead of 29 Separate Laws
Before November 2026, employers had to track compliance across 29 separate central labour laws — a patchwork built up over decades, with overlapping definitions and inconsistent thresholds. The four Labour Codes consolidate this into a single, more coherent framework. For most employers, the underlying obligations (paying minimum wages, providing social security, maintaining safe working conditions) haven’t fundamentally changed — what’s changed is how those obligations are defined, calculated, and enforced.
2. Code on Wages — What Changed
The most consequential change for payroll teams is the new, standardized wage definition. Under the earlier framework, many companies structured CTC with a low basic pay and a large proportion of allowances specifically to reduce PF and gratuity liability — a practice that’s now explicitly non-compliant. The Code on Wages requires that ‘wages’ (the base used for PF, gratuity, and other statutory calculations) constitute at least 50% of total CTC, meaning allowances above that 50% threshold get treated as wages for calculation purposes regardless of how they’re labeled.
This has a direct, immediate effect on payroll: companies with salary structures built around minimizing basic pay need to restructure, since the loophole that made that structuring worthwhile no longer exists.
3. Code on Social Security — What Changed
- ESI coverage expanded — both geographically (previously exempt areas may now be covered) and by category, including gig and platform workers in certain conditions
- Gig and platform workers are now formally included in the social security framework, a first for Indian labour law
- Annual Performance Report requirements for entities with overseas subsidiaries now have firmer deadlines (31st December) under the consolidated framework
4. Industrial Relations Code — What Changed
The Industrial Relations Code updates rules around standing orders, retrenchment, and layoffs — with the most immediately noticeable change for payroll teams being the 2-working-day final settlement rule. Full and final settlement of all dues (salary, leave encashment, gratuity where applicable) must now be completed within 2 working days of an employee’s separation, a significantly tighter window than the informal 30-45 day timelines many companies previously operated under.
5. Occupational Safety, Health and Working Conditions Code — What Changed
This code mandates digital record-keeping for attendance, wages, and statutory registers — meaning spreadsheet-based or paper-based payroll records that were previously acceptable for inspection purposes are no longer sufficient on their own. Companies still running payroll compliance on Excel are the ones most exposed here, since audit-readiness now implicitly assumes structured, digital, retrievable records.
6. The Practical Payroll Checklist
| Area | What to Check | Action If Non-Compliant |
|---|---|---|
| Salary structure | Does basic pay + equivalent wages meet the 50% of CTC threshold? | Restructure CTC components |
| Final settlement process | Can you complete F&F within 2 working days of exit? | Redesign offboarding workflow |
| ESI applicability | Have you reconfirmed coverage under the expanded definition? | Re-check registration status |
| Record-keeping | Are attendance, wage, and statutory registers digital and retrievable? | Migrate off spreadsheet/paper systems |
| Contract worker PF/ESI | Are you verifying contractor compliance, not just assuming it? | Add verification step to vendor onboarding |
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7. Frequently Asked Questions
A: The Code on Wages, the Code on Social Security, the Industrial Relations Code, and the Occupational Safety, Health and Working Conditions Code — together replacing 29 older central labour laws.
A: 21st November 2026, when the government brought all four codes into force simultaneously.
A: The new wage definition requires that wages (used for PF, gratuity calculation) make up at least 50% of total CTC, closing the previous practice of minimizing basic pay to reduce statutory contributions.
A: Full and final settlement of dues for an exiting employee must be completed within 2 working days of separation, under the Industrial Relations Code.
A: Yes — the Code on Social Security formally extends social security coverage to gig and platform workers in certain conditions, a first for Indian labour law.
A: The contribution rates themselves haven’t changed — what changed is the wage base they’re calculated on (via the new wage definition) and, for ESI, the coverage scope.
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