On November 21, 2025, marked the historic full rollout of India’s four Labour Codes. After years of delays, 29 old central labour laws have now been merged into four modern, simplified codes.
This is the most significant change to Indian labour laws in 75 years — and it directly affects every single payroll run from December 2025 onwards.
Whether you are an employee worried about your take-home salary or an employer trying to make your payroll 100% compliant, this 2000+ word guide explains everything in plain language.
Why the Labour Codes Were Needed
Before 2025, India had:
- 29 central labour laws + hundreds of state amendments
- Over 1,200 different compliance filings
- Archaic definitions that excluded gig workers, platform workers, and most of the unorganised sector
The new labour laws solve this by creating one national framework that is simpler for businesses and far more protective for workers.
The Four Labour Codes That Now Govern Every Indian Workplace
1. Code on Wages, 2019 – The Payroll Game-Changer
This is the code that impacts your salary slip the most.
Key payroll-related changes:
- National floor wage + state-wise minimum wages made mandatory for all sectors
- New definition of “wages” = Basic + Dearness Allowance + Retaining Allowance → Maximum 50% of CTC can be allowances; the rest must be Basic → This increases PF, gratuity & overtime liability
- Bonus now payable to everyone earning up to ₹21,000/month (earlier ₹7,000 in many states)
- Mandatory written appointment letter for every employee
- Payment of wages only through bank transfer (cash payment almost fully banned)
- Deductions from salary capped at 50%
Practical payroll impact: Most companies are restructuring salaries in Dec 2025–Mar 2026 to keep take-home pay stable while becoming compliant.
2. Industrial Relations Code, 2020 – Hiring, Firing & Fixed-Term Contracts
Key highlights that affect payroll & HR:
- Fixed-Term Employment (FTE) legally recognised → FTE employees now get pro-rata gratuity after 1 year
- Layoff/retrenchment threshold increased from 100 to 300 workers
- Standing orders mandatory only for 300+ workers (earlier 100)
- 14-day notice mandatory before any strike
Payroll teams love this because FTE contracts now have clear gratuity & notice pay rules.
3. Code on Social Security, 2020 – The Biggest Expansion of Benefits
This code dramatically expands the social security net and directly increases payroll statutory costs.
Must-know payroll changes:
- Gig & platform workers officially defined → Companies like Swiggy, Zomato, Uber must contribute 1–2% of turnover to a national social security fund
- Gratuity after 5 years → now payable even after 1 year for fixed-term employees
- PF & ESI applicability widened — even establishments with 1 hazardous worker need ESI
- ESI wage ceiling raised to ₹30,000 (some states already at ₹21,000)
- Pan-India portability of EPF & ESI using Aadhaar
- Maternity benefit extended to commissioning & adopting mothers (26 weeks)
Result: Payroll cost for many companies will rise 4–8% due to higher PF base and gig-worker contributions.
4. Occupational Safety, Health and Working Conditions (OSHWC) Code, 2020
Key payroll & cost implications:
- Maximum 12 hours workday (including overtime)
- Overtime payable at 2× normal wage rate (with employee consent)
- Free annual health check-up for workers above 40
- Creche mandatory if 50+ employees (earlier 30 women employees)
- Women allowed in night shifts with mandatory transport & safety
Overtime calculation in payroll software now needs strict consent logging and double-rate automation.
Side-by-Side Comparison: Old Laws vs New Labour Codes 2025
| Area | Old Laws (Pre-2025) | New Labour Codes 2025 |
|---|---|---|
| No. of Acts | 29 central + state variations | Only 4 codes |
| Minimum Wage | State-wise, many sectors excluded | National floor + binding state rates |
| PF Contribution Base | Often only on Basic + DA | Now on 50% of CTC (wages definition) |
| Gratuity Eligibility | Only after 5 years continuous service | 1 year for fixed-term employees |
| Bonus Ceiling | ₹7,000–₹21,000 (state variation) | Uniform ₹21,000 |
| Layoff Threshold | 100 workers | 300 workers |
| Gig/Platform Workers | No coverage | Life insurance + social security fund |
How the New Labour Laws Affect Your Payroll in 2026
- Salary Restructuring Is Inevitable Most companies are moving from 70–80% allowances to 50–60% allowances to comply with the new wages definition.
- Take-Home May Dip Initially Higher PF & gratuity base = higher deductions, but long-term retirement corpus grows.
- Overtime & Bonus Cost Will Rise Double overtime rate + lower bonus threshold = higher variable pay outflow.
- Gig Worker Contribution Aggregators must register and contribute 1–2% of annual turnover from April 2026.
- One Nation One Registration Single return, single license, single registration on the Shram Suvidha Portal.
For a detailed step-by-step guide on making your payroll 100% compliant with the 2025 Labour Codes, read our complete article: → How to Make Your Payroll Compliant with the New Labour Codes 2025 (Internal Link)
Compliance Checklist Every Payroll Team Must Follow Right Now
Immediate actions (Dec 2025 – Mar 2026)
- Issue appointment letters to all existing employees
- Restructure salary so Basic ≥ 50% of CTC
- Update payroll software for new wage definition, bonus, gratuity & overtime rules
- Register gig/platform workers on the Social Security Board
- File unified annual return (due 31st Jan 2026 for most states)
Long-term actions (Apr–Dec 2026)
- Implement biometric/face/GPS attendance for accurate overtime tracking
- Set up creche facility if ≥50 employees
- Conduct free health check-ups for workers above 40
- Train HR & payroll team on the new inspector-cum-facilitator scheme
State-Wise Status of Rule Notification (as of Nov 2025)
Fully notified & implemented: Gujarat, Uttar Pradesh, Karnataka, Haryana, Maharashtra, Tamil Nadu, Telangana, Odisha, Madhya Pradesh Rules under final draft: West Bengal, Kerala, Punjab Expected by Mar 2026: Remaining states
The Road Ahead: What Happens in 2026–2030
- Full gig-worker social security fund to be operational by Apr 2026
- Aadhaar-based single registration portal launch in 2026
- Web-based randomised inspection system (no more surprise raids)
- National database of migrant workers with portable benefits
- Possible inclusion of domestic workers under social security (discussion stage)
Final Verdict
The 2025 Labour Codes are a historic win-win: → Workers get higher long-term security, timely wages, and universal coverage → Businesses get simplified compliance, legal fixed-term hiring, and one nation-one law
The only losers are companies still running payroll on Excel — they will face heavy penalties from 2026 onwards.
Start updating your payroll processes today. The era of fragmented, confusing labour laws is officially over.