The Government has consolidated 29 central labour laws into four Labour Codes: The Code on Wages, 2019; Industrial Relations Code, 2020; Code on Social Security, 2020; and Occupational Safety, Health and Working Conditions Code, 2020. The four Codes came into force on 21 November 2025.

For employers, the bigger question is not simply what the new labour code says. It is whether their employment agreements, salary structures, HR policies and labour compliance systems are aligned with the new framework.

Earlier Framework vs the New Labour Code

Earlier, employers had to work with separate laws covering wages, industrial relations, gratuity, social security, contract labour and workplace safety. These included the Industrial Disputes Act, 1947, the Payment of Gratuity Act, 1972, wage-related statutes such as the Payment of Wages Act, 1936 and the Minimum Wages Act, 1948, and various social security legislation.

The new framework brings these areas together under four Codes. The Code on Wages covers wages and minimum wages; the Industrial Relations Code covers industrial relations and retrenchment; the Social Security Code covers EPF, ESI and gratuity; while the OSH Code deals with workplace safety, health and working conditions.

The change is therefore not merely about replacing old legislation. Employers need to review how these requirements work together in practice.

Employment Agreements Need a Second Look

One of the first documents employers should review is the employment agreement. The new framework provides for appointment letters, making clear employment documentation increasingly important.

Companies should review their existing employment contract and employment agreement format to ensure that remuneration, working conditions, leave, benefits, notice periods and termination provisions are properly documented.

The agreement should also align with the company’s leave policy for employees, gratuity policy, POSH policy, human resource policy manual and such other policy documents.

Salary Structures May Need a Fresh Review

The definition of wages is one of the significant changes under the new framework. Under Section 2(y) of the Code on Wages, 2019, where specified exclusions exceed 50% of total remuneration, the excess is treated as wages for statutory calculations such as PF, gratuity and bonus. The revised definition applies from 21 November 2025.

This means employers should look beyond the headline CTC and review basic wages, allowances, PF, gratuity and other employee benefits. Businesses should also separately review components such as employee stock options and their employee stock option plan, rather than assuming that every compensation component is treated in the same manner.

Fixed-Term Employment and Gratuity

The new framework formally recognises fixed-term employment, which is particularly relevant for businesses using project-based hiring. Under the Code on Social Security, 2020, the standard five-year qualifying period for gratuity does not apply to fixed-term employees, gratuity is payable on a pro-rata basis upon expiration of the fixed-term contract, regardless of the length of service (Section 53, second and third provisos; Section 2(34)(b)).

This makes the gratuity provisions relevant when structuring fixed-term employment as well as permanent employment. Employers should therefore review their existing gratuity calculations and gratuity policy alongside the framework that previously operated under the Payment of Gratuity Act, 1972.

Layoff vs Retrenchment

The distinction between layoff vs retrenchment remains important. The Industrial Relations Code now provides the framework for matters previously dealt with under legislation including the Industrial Disputes Act, 1947. Employers should not treat every employee exit as an ordinary termination.

Depending on the circumstances, an exit may involve retrenchment or give rise to an industrial dispute. Where the matter is legally sensitive, legal advice from a labour law practitioner can help employers assess the applicable requirements and mitigate the risk of a wrongful termination claim.

EPF, ESI and Working Conditions

The Social Security Code brings several social security provisions under one framework. Employers should review EPF and ESI applicability, ESIC registration, statutory contributions and employee records.

The fourth Code, the Occupational Safety, Health and Working Conditions Code, also requires employers to look beyond payroll and consider workplace safety, health, welfare and working conditions. Businesses using outsourced workers should also review their labour contract and contractor arrangements.

POSH Remains Separate

The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH Act) continues independently of the Labour Codes. Companies should maintain an appropriate POSH policy, a properly constituted Internal Committee, and processes for employee awareness, training and complaints.

Therefore, POSH in corporate workplaces remains a separate compliance responsibility. A dedicated POSH compliance checklist should sit alongside the wider labour compliance checklist, with support from a POSH consultant where required.

What Should Employers Review in 2026?

A practical review should cover:

• Employment agreement and employment contract
• Salary and wage structures
• EPF and ESI applicability
• ESIC registration
• Gratuity calculations and policy
• Leave policy for employees
• POSH policy and POSH compliance
• Labour contracts and contractor arrangements
• Retrenchment and termination procedures
• Employee benefits and ESOP documentation
• Human resource policy manual
• Applicable statutory records and returns

For businesses requiring structured assistance, labour law compliance services can help identify gaps and create a practical compliance roadmap.

Frequently Asked Questions

1. What are the four Labour Codes in India?

They are the Code on Wages, Industrial Relations Code, Code on Social Security, and Occupational Safety, Health and Working Conditions Code. They came into force on 21 November 2025.

2. What happened to the Industrial Disputes Act, 1947?

The Industrial Relations Code consolidates and replaces several earlier central labour laws, including the framework under the Industrial Disputes Act.

3. Should employers update their employment agreement?

Employers should review their employment agreement and employment contract to ensure that they reflect the current framework and actual HR practices.

4. Have gratuity rules changed?

Yes, gratuity is now covered under the Code on Social Security, 2020. For fixed-term employees, the five-year qualifying period is waived and gratuity is payable on a pro-rata basis upon contract expiration (Section 53, second and third provisos).

5. Does POSH come under the Labour Codes?

No. The POSH Act continues separately and requires its own compliance framework.

6. What should a labour compliance checklist cover?

It should cover employment documentation, wages, PF, ESI, gratuity, leave, POSH, workplace conditions, contractor arrangements and termination procedures.

Concluding Thoughts

The new Labour Codes bring together some of the most important aspects of the employer-employee relationship: how employees are hired, paid, protected and separated from an organisation.

For businesses, 2026 is therefore the right time to review whether their contracts, payroll systems, HR policies and compliance processes have kept pace with the new labour law in India.

A structured labour law compliance review can help identify gaps before they develop into regulatory issues, employee claims or an industrial dispute.

This article is intended for general informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice on specific compliance requirements. The legal position stated herein is based on the law as on the date of publication and may be subject to subsequent legislative or regulatory changes.