The New Labour Codes in 2026: What the Four Codes Replaced and What Changes for Your Business

If you employ people in India, the rulebook changed on 21 November 2025. Twenty-nine central labour laws — the Factories Act, the Industrial Disputes Act, the EPF and ESI Acts, the Payment of Gratuity Act and many more — were folded into four labour codes. This guide is for owners and HR teams at small and mid-sized businesses. It shows which old law went where, the changes under each code that actually reach an MSME payroll, where central and state rules stand in October 2026, a worked example in rupees, and a checklist. Each section links to our detailed guides on wages, gratuity, PF, ESIC, bonus, maternity and POSH.

Quick answer

The four labour codes — Code on Wages 2019, Industrial Relations Code 2020, Code on Social Security 2020 and OSH Code 2020 — came into force on 21 November 2025, replacing 29 central labour laws. The central government notified final rules on 8 May 2026; states are still finishing theirs. Old rules continue where they don't conflict, until replaced.

• One definition of 'wages' (basic + DA + retaining allowance, with a 50% cap on excluded allowances) now drives PF, ESI, gratuity and bonus

• Appointment letters for every worker; monthly wages by the 7th; full and final within 2 working days

• Fixed-term staff get gratuity after 1 year; standing orders and lay-off permission start at 300 or more workers

• Free annual health check-up for workers aged 40 years and above

• State rules: 10 states had final rules; the Centre's target for the rest is 31 October 2026

The four codes and the 29 laws they replaced

Labour is on the Concurrent List of the Constitution, so both Parliament and state legislatures can make labour laws, and both levels of government enforce them. Over seventy years that produced dozens of overlapping central Acts, each with its own definitions of "wages", "employee" and "establishment", its own registers and its own returns. A 15-person workshop could be covered by a different set of laws from a 25-person one, and HR teams had to calculate PF, ESI, gratuity and bonus on four slightly different wage figures.

The codes were passed by Parliament in 2019 and 2020 but sat unused while rules were drafted. On 21 November 2025 the government brought all four into force together. Here is where the old Acts now live.

One law is not in the list: the Sexual Harassment of Women at Workplace Act, 2013 (POSH) remains a separate law under the Ministry of Women and Child Development. The central OSH rules now say employers of women on night shifts must comply with it. See our POSH Act compliance guide.

Why the old rules still matter: the savings clause

A common misreading is that every old notification died on 21 November 2025. It didn't. Each code has a repeal-and-savings section — section 69 in the Code on Wages, section 104 in the IR Code — which keeps alive anything done under the repealed Acts, including notifications, orders and rates, as far as it isn't contrary to the code, until it is replaced. The government's own announcement said the same: during the transition, the rules, regulations, notifications, standards and schemes under the old Acts continue.

In practice that means three things. First, your state's last minimum wage notification under the 1948 Act still binds you until the state re-fixes rates under the Code on Wages; Haryana and Punjab, for example, have already done so in 2026. Second, existing PF and ESI registrations, codes and contribution systems carried straight over — EPFO and ESIC kept running the same portals, and the new EPF, EPS and EDLI Schemes of 2026 replaced the old schemes in mid-2026. Third, where a code changes a substantive right — gratuity for fixed-term staff after one year, the new wage definition, two-day exit settlement — the code applies from the date it came into force, regardless of the state's progress on rules.

Code on Wages: one wage definition for everything

The Code on Wages is the code most MSMEs feel first, because it touches every payroll regardless of size. Minimum wages now cover every employee, not just the "scheduled employments" each state listed under the 1948 Act. Monthly wages must be paid before the end of the 7th day of the next month, and when someone resigns, is dismissed or retrenched, their wages must be settled within 2 working days. Deductions are capped at half of wages in a wage period, and overtime is paid at twice the normal rate of wages.

The bigger change is the definition of wages in section 2(y). Wages are basic pay, dearness allowance and retaining allowance. HRA, conveyance, overtime, commission and a few other items are excluded — but only up to 50% of total remuneration. Anything above that is added back. Catch-all components like "special allowance" were never on the excluded list, so they count as wages from the first rupee. The Code on Social Security uses the same definition, which is why the rule flows into PF, ESI and gratuity as well.

The bonus provisions of the 1965 Act now sit in Chapter IV of the Code. On 25 August 2026 the Labour Ministry notified, for central-sphere establishments, an eligibility limit of ₹21,000 a month and a calculation ceiling of ₹7,000 a month or the minimum wage, whichever is higher, effective from 21 November 2025. Read our Code on Wages guide and bonus guide for the full rules.

Labour codes — headline numbers (2026)

29 central labour laws

Laws rationalised into four codes

In force 21 November 2025

50% of total remuneration

Cap on allowances excluded from 'wages'

Code on Wages s.2(y)

300 or more workers

Standing orders and lay-off permission start at

IR Code

1 year

Gratuity eligibility for fixed-term staff

SS Code

Industrial Relations Code: thresholds that matter to growing firms

The IR Code replaced the Industrial Disputes Act, the Standing Orders Act and the Trade Unions Act. For a small business, four changes stand out.

Higher thresholds for standing orders and closures. Certified standing orders — the written service rules covering classification of workers, shifts, leave, misconduct and termination — are now required only in industrial establishments with 300 or more workers, up from 100. The same 300 or more workers threshold applies to the need for prior government permission before lay-off, retrenchment or closure. A 150-worker factory can now retrench by following notice and compensation rules, without seeking state approval. Retrenchment compensation remains 15 days' average pay for every completed year of service (or part over six months), and the employer must also pay 15 days' last-drawn wages per retrenched worker into a worker re-skilling fund. The central rules require that transfer within 10 days of retrenchment, and the worker receives it within 45 days.

Fixed-term employment for all sectors. You can now hire a worker for a fixed term, on the same hours, wages and benefits as a permanent worker doing the same job. When the contract ends and isn't renewed, that is not retrenchment, so no notice pay or retrenchment compensation is due. But fixed-term staff earn pro-rata gratuity after 1 year — see our gratuity guide.

Grievance committees. Every industrial establishment with 20 or more workers must have a Grievance Redressal Committee of up to 10 members, with equal employer and worker representation and women members in proportion to the workforce. Establishments with 100 or more workers must also have a Works Committee.

Strikes need notice everywhere. Under the old law, strike notice was compulsory only in public utility services. Section 62 now applies it to every industrial establishment: notice within 60 days before, and no strike within 14 days of the notice. The central government has also issued Model Standing Orders, 2026 for manufacturing, mining and service sectors, which smaller employers can adopt as their service rules even when not legally required.

Code on Social Security: PF, ESI, gratuity, maternity and gig work

The Social Security Code merged nine Acts but kept their core benefits and the organisations that run them — EPFO and ESIC carry on as before.

PF and ESI coverage. EPF still applies to establishments with 20 or more employees, at 12% of wages from each side. The EPF wage ceiling was raised to ₹25,000 a month from 17 September 2026, bringing more employees into mandatory coverage. ESIC now applies across India rather than only in notified areas, to establishments with 10 or more employees; smaller units can join voluntarily, and a unit with even one worker in a hazardous process must register. The ESI wage limit is ₹21,000/month. Our guides to PF deduction rules and ESIC rules cover rates and due dates.

Gratuity. The 5 years rule continues for permanent staff, with the tax-free ceiling at ₹20 lakh. Fixed-term employees qualify after 1 year, with any further part-year over six months rounded up. Because gratuity is computed on "wages", the 50% rule can raise it significantly.

Maternity. The Maternity Benefit Act now sits in Chapter VI: 26 weeks of paid leave, a crèche for establishments with 50 or more employees, and work-from-home by agreement. See our maternity benefit guide.

Gig and platform workers. For the first time, the law defines gig work, platform work and aggregators. Aggregators contribute 1–2% of annual turnover, capped at 5% of amounts paid to gig and platform workers to a social security fund. Under the central rules, gig workers aged 16 and above register on a central portal with Aadhaar.

Interest on dues. Any amount due under the code carries interest at 12% a year (simple) from the due date until payment.

OSH Code: registration, appointment letters and working conditions

The Occupational Safety, Health and Working Conditions Code absorbed thirteen Acts, from the Factories Act to the Contract Labour Act. Its everyday effects on a small employer are these.

Who counts as a factory. A unit is a factory if it has 20 or more workers with power or 40 or more workers without — double the old thresholds, although a state's own pre-code numbers continue there until amended. Smaller units still have duties as "establishments": registration under the OSH Code applies to establishments with 10 or more workers. For licensing details see our factory licence guide.

One registration, one licence, one return. The code replaces separate registrations under several Acts with a single electronic registration, and contractors can take a single licence valid in more than one state, for 5 years. Contract labour rules now start at 50 or more contract workers. Haryana, Maharashtra and Karnataka have gone further and exempted units registered under the OSH Code from separate Shops and Establishments registration.

Appointment letters. Every worker must receive an appointment letter stating designation, wages and social security entitlements. The central rules prescribe its format. This is new for most MSMEs that hired informally.

Headcount thresholds at a glance

Step 1

Any size

Minimum wage, pay by 7th, appointment letter

Step 2

10+

ESIC, OSH registration, POSH committee

Step 3

20+

EPF, bonus, factory with power, grievance committee

Step 4

50+

Crèche, contract labour rules

Step 5

300+

Standing orders, lay-off permission

Health check-ups. Employers must provide a free annual health check-up to workers aged 40 years and above. Several states — Gujarat among them — use 45 years in their rules, so check yours.

Hours, overtime and leave. The normal week is 48 hours. Overtime is paid at twice the normal rate, needs the worker's consent, and the central rules cap it at 144 hours a quarter. Workers can take annual leave after 180 days of work in a year, down from 240.

Women at night. Women may work night shifts and in all kinds of work, including underground mining and heavy machinery, with written consent, safe transport, CCTV and other safeguards. Safety committees are mandatory in establishments with 500 or more workers.

Central and state rules: where things stand in October 2026

A code sets the framework; rules fill in forms, registers, fees, timelines and many numbers. The central government published draft rules under all four codes on 30 December 2025 and notified the final Code on Wages (Central) Rules, Social Security (Central) Rules, OSH (Central) Rules and Industrial Relations (Central) Rules on 8 May 2026 (G.S.R. 343(E)). Central rules apply where the central government is the "appropriate government" — railways, mines, oilfields, major ports, banks, insurance companies and central PSUs, and their contractors. For everyone else, the state's rules govern.

The states are at different stages. In late September 2026 the Labour Secretary said 10 states had published final rules and the rest had drafts out for consultation; the Centre hopes every state and union territory will finish by 31 October 2026. A law-firm tracker published on 1 October 2026 lists the following final rules:

• Code on Wages: Andhra Pradesh, Arunachal Pradesh, Bihar, Gujarat, Ladakh, Lakshadweep, Rajasthan, Uttarakhand and Uttar Pradesh.
• IR Code: Andhra Pradesh, Arunachal Pradesh, Bihar, Gujarat, Jammu & Kashmir, Ladakh, Lakshadweep, Rajasthan and Uttarakhand.
• OSH Code: Andhra Pradesh, Arunachal Pradesh, Bihar, Gujarat, Jammu & Kashmir, Ladakh, Lakshadweep, Rajasthan and Uttar Pradesh.
• Social Security Code: Andhra Pradesh, Arunachal Pradesh, Bihar, Gujarat, Ladakh, Lakshadweep and Uttar Pradesh.

If your state isn't on a list, its draft rules and its old-Act rules (through the savings clause) guide day-to-day compliance. State rules differ in real ways. According to the same law-firm review, Gujarat's social security rules require five years of service under a fixed-term contract before gratuity, while the central rules use one year, and several states set the health check-up age at 45 rather than 40. Always read your own state's notification.

Labour codes — key dates

Aug 2019 – Sep 2020

Parliament passes the four codes

21 Nov 2025

All four codes brought into force; 29 Acts repealed with savings

30 Dec 2025

Draft central rules published for consultation

8 May 2026

Final central rules under all four codes and Model Standing Orders, 2026 notified

25 Aug 2026

Central bonus notifications: ₹21,000 eligibility, ₹7,000 calculation ceiling

17 Sep 2026

EPF wage ceiling raised to ₹25,000 a month

31 Oct 2026

Centre's target for all states and UTs to notify rules

Worked example: what changes for a 25-person MSME

Take a 25-employee engineering unit in Gujarat, using power. It was a factory under the old law (10+ workers with power) and stays one under the new law (20+). It is covered by EPF and ESIC, and by the bonus chapter.

Consider one supervisor, Ravi, on a monthly gross of ₹30,000: basic ₹12,000, special allowance ₹6,000, HRA ₹9,000 and conveyance ₹3,000. The firm has been paying PF and computing gratuity on basic alone.

Step 1 — wages under the Code. The excluded items are HRA and conveyance: ₹12,000, which is 40% of ₹30,000. That's under the 50% cap, so nothing is added back. But special allowance is not an excluded item, so wages are basic plus special allowance: ₹18,000.

Step 2 — PF. ₹18,000 is below the ₹25,000 a month ceiling, so PF at 12% is ₹2,160 a month from Ravi and ₹2,160 from the employer, against ₹1,440 each before. The employer's cost rises by ₹720 a month, or ₹8,640 a year, for this one employee.

Step 3 — gratuity. Gratuity is 15 days' wages per year of service, computed as wages × 15 ÷ 26. On ₹18,000 that is ₹10,385 per year of service, against ₹6,923 on basic alone. For an employee with eight years' service, the liability rises from about ₹55,385 to ₹83,077.

Step 4 — ESI. Ravi's gross of ₹30,000 is above the ₹21,000/month limit, so he stays outside ESI. A helper earning ₹19,000 remains inside it.

Step 5 — paperwork. Ravi needs a written appointment letter in the prescribed format, a wage slip each month, and — if he is 40 or over — a free annual health check-up. If he resigns, his wages must be paid within two working days of his last day.

Across 25 employees, a unit that ran a low-basic structure can see PF and gratuity costs rise by 20–50% for affected staff. That is an estimate based on typical structures, not an official figure; run your own numbers employee by employee.

Common mistakes and how to fix them

Waiting for state rules before doing anything. Substantive rights — the wage definition, fixed-term gratuity, two-day settlement, appointment letters — have applied since November 2025. Fix: recompute wages and gratuity provisions now, and treat state rules as procedural.

Restructuring salaries to cut "wages". Moving pay from basic into a new allowance doesn't work if the allowance isn't on the excluded list, and listed allowances above 50% are added back anyway. Fix: model the 50% test for every grade.

Treating fixed-term contracts as a way to avoid gratuity. Fixed-term staff earn gratuity after one year. Fix: provide for it from day one of the contract.

Assuming the factory licence has lapsed. Old registrations and licences continue until replaced, but new units should register under the OSH Code. Fix: check your state's portal for the transition process.

Ignoring the re-skilling fund. Retrenchment now carries an extra 15 days' wages per worker, payable within 10 days under the central rules. Fix: add it to your retrenchment cost estimates.

Labour codes — MSME compliance checklist

0/10

• Map each salary component to the Code on Wages definition and run the 50% test for every employee
• Recompute PF (ceiling ₹25,000 a month), ESI, gratuity and bonus on the new wage figure
• Issue written appointment letters in the prescribed format to all workers, including existing ones
• Pay monthly wages before the 7th and set up a two-working-day exit settlement process
• Provide gratuity for fixed-term staff after one year
• Arrange free annual health check-ups for workers aged 40+ (or your state's age)
• Check your headcount against the thresholds: 10 (ESIC, OSH registration, POSH), 20 (EPF, bonus, factory with power, grievance committee), 50 (crèche, contract labour), 300 (standing orders, lay-off permission)
• Collect written consent and arrange transport and CCTV before women work night shifts
• Read your state's final or draft rules under each code and update registers and forms
• Keep watching for the national floor wage and the Labour Ministry's master FAQs

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Official links

• Ministry of Labour & EmploymentCodes, central rules, notifications
• PIB — four Labour Codes made effective
• Code on Wages, 2019 (India Code)
• Industrial Relations Code, 2020 (Gazette)
• PIB factsheet — Code on Social Security, 2020
• Shram Suvidha PortalRegistration and returns

What to do next

Start with the wage definition, because it drives four separate costs. List every salary component, recompute wages for each employee, and re-run PF, gratuity and bonus provisions. Then issue appointment letters and check your headcount against each threshold. Generate compliant monthly wage slips with our free salary slip generator, and work through the detailed guides on the Code on Wages, gratuity, maternity benefit and bonus.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

When did the new labour codes come into force?

All four 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. The central government notified its final rules under all four on 8 May 2026. States are notifying their own rules separately.

Which laws do the four labour codes replace?

Together they replace 29 central labour laws. The wage code absorbed four Acts, the IR Code three, the Social Security Code nine and the OSH Code thirteen — including the Factories Act, the Industrial Disputes Act, the EPF Act, the ESI Act, the Payment of Gratuity Act and the Maternity Benefit Act.

Are old labour law rules still valid after the new codes?

Partly. Each code has a repeal-and-savings section, and the government said that during transition the rules, notifications and schemes under the old Acts continue to the extent they don't conflict with the codes. So an old state minimum wage notification stays in force until the state replaces it under the Code on Wages.

Do the labour codes apply to small businesses with fewer than 10 employees?

Yes, in part. Minimum wages, timely payment, equal pay and appointment letters apply to every employer regardless of size. Other duties start at thresholds: ESIC at 10 or more employees, EPF at 20 or more employees, OSH registration for establishments at 10 or more workers, and bonus at 20 or more persons.

What is the 50% wage rule in the new labour codes?

'Wages' means basic pay, dearness allowance and retaining allowance. Allowances such as HRA, conveyance, overtime and commission are excluded only up to 50% of total remuneration; any excess is added back. The same definition drives PF, ESI, gratuity and bonus, so a low-basic salary structure now raises those costs.

Have all states notified rules under the labour codes?

Not yet. In late September 2026 the Labour Secretary said 10 states had published final rules and the rest had drafts out for consultation, with a target of 31 October 2026. Andhra Pradesh, Bihar, Gujarat and Uttar Pradesh are among states with final rules under most codes.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Government makes the four Labour Codes effective (21 Nov 2025) — PIB — Ministry of Labour & Employment · accessed 9 October 2026
2. 2.Code on Social Security, 2020: Towards Universal and Inclusive Social Protection (factsheet, 22 Nov 2025) — PIB · accessed 9 October 2026
3. 3.The Industrial Relations Code, 2020 (Gazette of India Extraordinary) — Gazette of India · accessed 9 October 2026
4. 4.The Code on Wages, 2019 (No. 29 of 2019) — India Code, Legislative Department · accessed 9 October 2026
5. 5.Government of India notifies final Rules on four Labour Codes (Flash News, 10 May 2026) — KPMG in India · accessed 9 October 2026
6. 6.Employment Law Bulletin, October 2026 — Shardul Amarchand Mangaldas & Co · accessed 9 October 2026
7. 7.Labour Codes: Centre expects all states/UTs to notify rules by Oct 31 — Sightsinplus · accessed 9 October 2026
8. 8.Bonus payout under the Code on Wages (Ergo, 4 September 2026) — Khaitan & Co · accessed 9 October 2026