Quick answer:
India’s four Labour Codes 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 came into force on 21 November 2025, replacing 29 central labour laws. Central Rules were notified on 8–9 May 2026; state rules are still rolling out. For a US employer the four changes that matter are the 50% statutory wage floor, gratuity vesting at one year for fixed-term staff, the retrenchment permission threshold rising from 100 to 300 workers, and a two-working-day deadline for final settlement.
This is the single most consequential regulatory change for any US company with India-based staff, because it touches payroll, contracts and terminations simultaneously and because most of it applies whether or not you have an Indian entity.
When Did India’s Four Labour Codes Take Effect?
21 November 2025 for the Codes themselves. The four sets of Central Rules followed on 8–9 May 2026: the Code on Wages (Central) Rules, 2026 (G.S.R. 343(E), 8 May 2026), the Industrial Relations (Central) Rules, 2026 (G.S.R. 342(E), 8 May 2026), the Social Security (Central) Rules, 2026, and the Occupational Safety, Health and Working Conditions (Central) Rules, 2026 (9 May 2026).
The Codes were passed in 2019 and 2020 and then sat unimplemented for five years while states drafted rules. November 2025 is the point at which the paper became payroll.
What the dates mean in practice. The obligations are live now. The procedural detail forms, registers, filing mechanics follows the rules that bind your particular establishment, and for most private employers that is a state rulebook, not the Central one. See the state-by-state section below.
What Changed Under India’s New Labour Codes?
The Government of India consolidated 29 central labour laws into four codes. This is the largest rewrite of Indian labour law since independence: the Industrial Disputes Act being replaced had stood, largely intact, since 1947. For 78 years the framework barely moved, and then all of it moved at once.
Seven changes carry the practical weight for a US employer:
- A statutory wage floor. Basic pay, dearness allowance and retaining allowance must together be at least 50% of total remuneration. Excluded allowances above that threshold are deemed to be wages Code on Wages, Section 2(y).
- Gratuity at one year for fixed-term employees, down from five Code on Social Security, Section 53.
- The retrenchment permission gate moves to 300 workers, up from 100 Industrial Relations Code, Chapter X, Section 77.
- Final settlement within two working days of dismissal, retrenchment, closure or resignation Code on Wages, Section 17(2).
- A written appointment letter is mandatory for every worker, including contractors functioning as employees.
- Gig and platform workers are recognised in statute for the first time, under Chapter IX of the Code on Social Security (Sections 109–114), with aggregator contributions of 1–2% of annual turnover, capped at 5% of amounts paid to those workers, flowing into a Social Security Fund at Section 141. The rate has not yet been notified, so this limb is not operational.
- Women may work night shifts with consent and prescribed safety measures — OSH Code, Section 43.
Who Do India’s Labour Codes Apply To?
Every employer with workers physically based in India including US companies with no Indian entity that hire through an Employer of Record or PEO. Where your company is incorporated is irrelevant. Where the employee sits is decisive.
More precisely:
- No headcount floor for most obligations. The wage definition, appointment-letter requirement and two-day settlement deadline apply from your first India hire.
- 300+ workers triggers the government-permission regime for retrenchment, lay-off and closure under Chapter X of the Industrial Relations Code. Between 50 and 299 workers, notice obligations apply but the permission gate does not.
- Fixed-term employees now receive statutory benefits proportionate to tenure, on par with permanent staff which is the whole point of the one-year gratuity change.
- Contractors who function as employees are treated as employees. Indian tribunals assess hours, supervision, equipment and reporting line, not the label on the contract.
- Aggregators and platform businesses face a new, separate contribution obligation once the rate is notified. Nine aggregator categories are listed in the Seventh Schedule to the Code on Social Security.
What Is the US Equivalent of India’s Labour Codes?
There is no single US statute that corresponds to them, and the differences are structural rather than cosmetic. The pattern across every row below is the same: the US regulates procedure and calculation; India regulates permission and design.
The issue | How it works in the US | How it works in India | Where the analogy breaks |
|---|---|---|---|
Pay architecture | The FLSA (29 CFR 778) regulates the regular rate of pay for overtime total compensation ÷ hours worked, with eight statutory exclusions. It says nothing about how you split base versus allowances. | Code on Wages, Section 2(y) caps excluded components at 50% of total remuneration. The excess is deemed to be wages. | A 30% base / 70% allowance structure is perfectly lawful in the US. In India it is lawful and silently expensive the statutory base re-bases itself around you. |
Reduction in force | No government approval. WARN requires 60 days’ notice at employers with 100+ employees for a plant closing (50+ affected) or mass layoff (50–499 and ≥33%, or 500+). Penalty: back pay up to 60 days plus $500/day to the local government unit. Enforced only by private suit. | At 300+ workers, prior government permission is required for retrenchment, lay-off or closure, with three months’ notice for retrenchment and 90 days for closure. | WARN buys time. India requires permission and permission can be refused, which voids the action entirely. A “60 days and done” restructuring plan does not port. |
Severance | No federal statutory severance. Purely contractual; employment is at-will in 49 states. A severance plan may become an ERISA welfare plan with fiduciary duties. | Gratuity is a statutory entitlement roughly 15 days’ wages per completed year, payable within 30 days of exit, vesting at 5 years for permanent staff and 1 year for fixed-term employees. | US severance is negotiated at exit. Indian gratuity is accrued from year one. It belongs in your provisions, not your exit budget. |
Final paycheck | State law, no federal floor. California: immediately on discharge, 72 hours on resignation (Labor Code §§201–202), with a waiting-time penalty of up to 30 days’ pay. Texas: 6 calendar days. New York: next regular payday. | Two working days, nationally, from dismissal, retrenchment, closure or resignation. | The US has 51 rules and no floor. India has one clock and unlike most US states, it runs on resignations too. |
Worker classification | Three codified tests apply at once: the IRS common-law test (behavioural control, financial control, relationship), the DOL economic reality test itself in flux, with a February 2026 proposal to rescind the 2024 rule and California’s ABC test. Plus a Section 530 safe harbour. | Judicial substance-over-form. No codified test, no bright line, no safe harbour. | US exposure is rule-driven and forum-specific. Indian exposure is fact-driven and retrospective a tribunal can reclassify years later with PF, ESI and gratuity arrears. |
Gig workers | Default independent contractors, with state-level carve-outs built by ballot initiative (California Prop 22), settlement (a $175m Massachusetts agreement with Uber and Lyft) and statute (Washington ESHB 2076). No federal framework, no portability. | Defined national statutory categories, funded by a levy on aggregator turnover, with Aadhaar-linked portability across states and platforms. | The US produced a third category by accident, state by state. India legislated one on purpose, nationally. |
What Changed Compared With the Old Indian Labour Laws?
Aspect | Before 21 November 2025 | Now, under the Labour Codes |
|---|---|---|
Wage definition for PF and gratuity | Basic pay commonly held at 30–40% of CTC to minimise statutory contributions | Basic + DA + retaining allowance must equal at least 50% of total remuneration; the excess is added back to the wage base automatically |
Retrenchment and lay-off approval | Government permission required above 100 workers | Threshold raised to 300 workers — materially more flexibility for mid-size employers |
Gratuity for fixed-term staff | 5 years of continuous service | 1 year of service |
Gig and platform workers | No formal recognition, no social security coverage | Defined in statute; aggregator-funded Social Security Fund at s.141 (rate pending notification) |
Full and final settlement | Typically 30–45 days in practice | 2 working days — including on resignation |
Appointment letters | Widely informal, especially for contractors | Mandatory written letter for every worker |
Women on night shifts | Restricted in many states and industries | Permitted with consent and prescribed safety measures |
Registration | Multiple registrations under multiple acts | Moving toward “one establishment, one registration” |
How Much Do the Labour Codes Cost a US Company?
Three numbers to take to your CFO.
- The statutory base rises without cost to company rising. For a typical India engineering salary structured at 35% basic, moving to the 50% floor lifts the PF and gratuity computation base by roughly 43%. Total CTC can stay flat; the split between take-home and statutory does not.
- Take-home pay falls 5–15% for employees on allowance-heavy structures. Nobody’s offer letter changed. Their payslip did. This is a communications problem before it is a finance problem, and it lands the month you comply.
- Gratuity provisioning moves onto the balance sheet years earlier. With fixed-term staff vesting at one year instead of five, a 100-person India team on fixed-term contracts carries an accruing liability from year one that simply did not exist under the old model.
The retrenchment threshold change cuts the other way and is genuinely good news. At 300 workers rather than 100, the overwhelming majority of US-founded India teams now sit below the permission gate. Notice and compensation obligations under the Industrial Relations Code still apply at any size.
Which State’s Labour Code Rules Apply to You?
The Codes are national. The rules are not — and this is the question most coverage skips. Central Rules bind only establishments where the Union is the appropriate government, which most private employers are not. For everyone else the binding rulebook is the state one, and states are notifying unevenly.
As at the most recent reliable tracker (Lakshmikumaran & Sridharan, 11 May 2026):
- All four codes notified — 7 jurisdictions: Arunachal Pradesh, Manipur, Dadra & Nagar Haveli and Daman & Diu, Gujarat, Meghalaya, Lakshadweep, Bihar.
- Partially notified — around 9: Tripura, Mizoram, Nagaland, Andaman & Nicobar Islands, Rajasthan, Punjab, Sikkim, Andhra Pradesh, Puducherry.
- Draft rules only — the remaining 20 or so, including most of the states US companies actually hire in: Maharashtra, Karnataka, Tamil Nadu, Telangana, Delhi, Haryana, Uttar Pradesh. West Bengal has been the outlier throughout.
Read this carefully before relying on it. Published trackers disagree materially, and no government source publishes a consolidated state-by-state list. The figures above are dated 11 May 2026; a July 2026 press report put the “all four codes” count at four states rather than seven. Treat the shape as reliable and the count as approximate — and confirm the position for each state you employ in rather than for the country.
The operational consequence: if you have staff in Bengaluru and Ahmedabad, they may currently be on different rulebooks. Your appointment-letter template, registers and filing calendar need to be checked per site, not per company.
Can an Indian Labour Inspector Fine Us?
A fair question, and one almost no vendor content answers. Under the Codes, the old inspector role is recast as an Inspector-cum-Facilitator — the title change is meaningful. The role carries advisory and facilitation duties alongside inspection, and the Codes introduce compounding of offences for many contraventions, which lets a matter be settled on payment rather than prosecuted.
For a US employer, the practical exposure is not a surprise raid. It is the paper trail: registers, wage records, appointment letters and returns. The Codes move toward web-based inspection schemes and “one establishment, one registration”, which means the things that get you into trouble are the documents you never created — most commonly appointment letters for people you thought were contractors.
How Should a US Company Prepare for the Labour Codes?
Nine items, four owners. None of them require a lawyer to start.
Window | Do this | Owner |
|---|---|---|
Days 1–30 | Audit basic-pay ratios across your whole India payroll against the 50% floor. Output a list of everyone below it and the delta on each. | Payroll or your EOR |
Days 1–30 | List every worker without a written appointment letter — including contractors who function as employees. | HR operations |
Days 1–30 | Confirm which state’s rules bind each India site. Do it per site. | Legal or your EOR |
Days 31–60 | Model the gratuity provision for everyone approaching one year (fixed-term) or five years (permanent). This is a balance-sheet item your auditors will ask about. | Finance |
Days 31–60 | Rebuild the exit workflow around a two-working-day clock. A monthly F&F batch will not clear it. | HR ops + payroll |
Days 31–60 | Re-paper contractor relationships that look like employment. Misclassification exposure went up, not down. | Legal |
Days 61–90 | Reissue appointment letters to everyone who lacks one. | HR operations |
Days 61–90 | Brief employees before the first affected payslip. Learning it from a payslip reads as a pay cut. | HR |
Days 61–90 | Set a standing review for new state rule notifications. This is the item that decays fastest. | Legal or your EOR |
When in Your India Expansion Should You Deal With This?
At the first hire, not the fiftieth. Wage structuring, appointment letters and exit procedure all trace back to decisions made when you write your first India offer.
Restructuring compensation for an existing team afterwards means renegotiating take-home pay with people who never agreed to a change. That is materially harder — and more expensive in goodwill than in money — than building it correctly on day one. Every month you run the old structure adds another cohort whose paycheck you will eventually have to alter.
If you are pre-first-hire, this is a two-hour conversation. If you are at forty people on legacy structures, it is a project with a communications plan attached.
Talk to someone who reads these notifications anyway. If you want to know whether your current India salary structures clear the 50% wage floor, or which state’s rules bind your Pune team, our compliance specialists will walk through your actual numbers with you — no pitch, no obligation. Most of these conversations end with a two-line answer and a spreadsheet. Talk to an India compliance specialist · Get a free cost and compliance assessment · or go back to the India Legislative Updates hub.
Frequently Asked Questions
What are India’s four labour codes?
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 replaced 29 central labour laws and came into force on 21 November 2025.
When did India’s labour codes come into effect?
21 November 2025 for the Codes. The four sets of Central Rules were notified on 8–9 May 2026. State rules are being notified separately and unevenly, and are still incomplete as of September 2026.
Do the labour codes apply to US companies without an Indian entity?
Yes. Indian labour law applies wherever the employee physically works, regardless of where the employer is incorporated. If you hire through an Employer of Record, the EOR is the legal employer and carries the obligations — but the obligations exist either way.
What is the 50% wage rule?
Basic pay, dearness allowance and retaining allowance must together be at least 50% of an employee’s total remuneration. If excluded components — HRA, conveyance, bonus, commission — exceed 50%, the excess is deemed to be wages for statutory calculation. It is a cap on exclusions, not a mandate to set basic pay at exactly 50%.
Will the new labour codes reduce my employees’ salaries?
Cost to company does not change. Take-home pay may fall 5–15% for employees on allowance-heavy structures, because more of the same total is routed into provident fund and gratuity. The money is not lost — it moves from the monthly payslip into statutory savings and provisions.
Is there a 48-hour full and final settlement rule?
Not quite — the rule is two working days, which is not the same as 48 hours. Section 17(2) of the Code on Wages requires wages to be paid within two working days of removal, dismissal, retrenchment, closure or resignation. Across a weekend or a public holiday the elapsed time is longer than 48 hours; within an ordinary week it is shorter. In practice it means the F&F calculation must be ready before the last working day, not started after it. Note that gratuity runs on its own clock — payable within 30 days of exit — so the two deadlines are separate.
Can employers retrench workers without government permission?
Below 300 workers, yes — subject to notice and compensation obligations under the Industrial Relations Code. At 300 or more workers in an industrial establishment, prior government permission is required under Chapter X, with three months’ notice for retrenchment.
Does the 300-worker threshold help or hurt small US teams in India?
It helps. Most early-stage and mid-market US teams in India have far fewer than 300 India-based employees, so raising the gate from 100 means less regulatory friction for restructuring than existed before. Notice and compensation still apply at any size.
What is fixed-term employment under the Industrial Relations Code?
A direct employment contract for a defined period, with statutory benefits proportionate to tenure and on par with permanent employees. The significant change is gratuity: a fixed-term employee vests at one year rather than five, under Section 53 of the Code on Social Security.
Do the labour codes apply if my state has not notified its rules?
The Codes are in force nationally. The Central Rules bind only establishments where the Union is the appropriate government. For most private employers the procedural detail follows state rules, which are incomplete — so the substantive obligations apply now, and the forms and filing mechanics follow your state.
Are gig and platform workers covered?
They are recognised in statute for the first time, under Chapter IX of the Code on Social Security. Aggregators will owe 1–2% of annual turnover, capped at 5% of amounts paid to those workers, into a Social Security Fund. The rate has not been notified, so the levy is not yet payable — but the self-assessment and annual-return machinery under the Social Security (Central) Rules, 2026 already exists.
What happens to our existing registrations and licences?
The Codes move toward “one establishment, one registration”, and transitional provisions generally preserve existing registrations until the corresponding state rules take effect. Because that transition is state-dependent, confirm it for each site rather than assuming a national position.
Where Can You Read the Official Labour Code Notifications?
- Government makes the four Labour Codes effective — Press Information Bureau, 21 November 2025
- Additional FAQs on Labour Codes (as on 16.03.2026) — Ministry of Labour & Employment (PDF)
- Compliance Handbook for Employers Under the Four Labour Codes — Ministry of Labour & Employment (PDF)
- Code on Wages, 2019 — India Code (full text)
- Code on Wages, 2019, Section 2(y) — statutory text
- Code on Wages, 2019, Section 17 — statutory text
- Industrial Relations Code, 2020, Section 77 — statutory text
- Code on Social Security, 2020 — India Code (PDF)
- Code on Social Security, 2020 — PIB factsheet
- Occupational Safety, Health and Working Conditions Code, 2020 — India Code
- Code on Wages, 2019 — PIB factsheet, 23 November 2025 (PDF)
- US comparison: eCFR 29 CFR Part 778 · DOL WARN Act · California DIR final pay · IRS worker classification
Sourcing standard. Every statutory date, threshold and section number above is hyperlinked to a gazette notification, ministry circular, PIB release, or the text of the Act. Nothing statutory is asserted in our own words. The state-rule status figures are dated and attributed because published trackers disagree. Interpretation, the US comparison and the preparation guidance are ours. This is not legal advice.