India's new Labour Codes: what US employers need to know

India did not amend its employment law that day. It replaced it.

Twenty-nine separate central labour laws — each with its own definitions, its own thresholds and its own registers — were consolidated into four Codes. For an employer, the significant part is not the reduction in number. It is that the definitions were harmonised. Terms like "wages" that previously meant different things under different statutes now mean one thing across all four Codes.

That single change is what makes the transition expensive for employers who had optimised against the old inconsistency, and straightforward for those structuring employment from scratch afterwards.

If you read only one thing about the Codes, make it this.

Indian salaries were conventionally split into a modest Basic component plus a large collection of allowances — house rent, conveyance, special allowance and so on. Most statutory employer costs were computed on Basic alone. So a smaller Basic meant smaller Provident Fund contributions, smaller gratuity accruals and a smaller bonus base. The structure was legal, widespread, and the reason Indian salary slips look the way they do.

The uniform definition ends that. Basic + DA must be at least 50% of total remuneration, and where allowances exceed the other half, the excess is added back into wages anyway. There is no structure that avoids it.

Everything downstream moves as a result: Provident Fund at 12% of wages, gratuity accruing at roughly 4.81% of wages, statutory bonus within the Payment of Bonus Act threshold, leave encashment, and overtime — all now computed on a base that is at minimum half of total pay rather than whatever Basic happened to be.

The wage definition gets the attention, but the other three Codes are where the paperwork lives.

The Industrial Relations Code governs employment terms, standing orders and dispute resolution, and it puts fixed-term employees at par with permanent staff. For a US employer that is the important line: a fixed-term contract in India is not a way to employ someone on lesser terms. It changes the duration, not the entitlements.

The Code on Social Security consolidates what used to be separate regimes — EPF, ESI, gratuity, maternity benefit — into one framework, and extends coverage to gig workers. It is also where gratuity eligibility for fixed-term staff drops from five years to one.

The OSH Code covers working conditions: working hours, overtime computed on the new wage base, leave entitlements, and two requirements that catch employers out because they are administrative rather than financial — an appointment letter is mandatory for every employee, and annual health check-ups are required for employees over 40.

For a company that already employs people in India, the risk is not that filings stop. It is that they continue, on time, computed on a base that is no longer correct.

A contribution made punctually against an outdated wage definition is still a shortfall. It accrues quietly, per employee, per month, and it does not announce itself — it surfaces in a due-diligence review, an inspection, or an employee query about a Provident Fund balance that does not reconcile with their payslips.

This is why our answer to the transition is structural rather than procedural. Salary structures are built on the current definition from the start, and statutory contributions are computed on that base — so there is no gap to discover later.

The Codes are in force, but the rules under them are not all notified yet — and labour is a subject on which both the central government and the states legislate.

In practice that means the framework is settled and the detail is still arriving, state by state. Professional Tax schedules, Shops & Establishments rules, state holidays and state-level Code rules all vary by an employee's work location, and our compliance calendar tracks them state-wise for exactly that reason.

We track every notification as it is issued. It is unglamorous work and it is the reason our clients never carry transition risk of their own.