India's new Labour Codes, explained for US employers

On 21 November 2025, India did not amend its employment law. It replaced it.

Twenty-nine separate central labour laws — each with its own definitions, thresholds and registers — were consolidated into four Codes. If you employ people in India, or are about to, this is the framework you are employing them under.

Why consolidation mattered more than it sounds

The headline is the reduction from 29 laws to four. The consequential part is quieter: the definitions were harmonised.

Under the old regime, a term like "wages" meant different things under different statutes. Several competing definitions coexisted, and the gaps between them were where a great deal of salary structuring lived. One definition now applies across all four Codes.

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

The four Codes

• The Code on Wages, 2019Wages · Bonus

  Uniform 50% wage definition, national floor wage, minimum wages, timely payment of wages and statutory bonus.

• The Industrial Relations Code, 2020Contracts · Disputes

  Employment terms, standing orders, fixed-term employment at par with permanent staff, and structured dispute resolution.

• The Code on Social Security, 2020EPF · ESI · Gratuity

  Consolidates EPF, ESI, gratuity (now after 1 year for fixed-term staff), maternity benefit and gig-worker coverage.

• The OSH Code, 2020Hours · Leave · Welfare

  Working hours, overtime on the new wage base, leave entitlements, mandatory appointment letters and annual health check-ups (40+).

The Code on Wages, 2019

This is the one that changes your numbers.

The uniform wage definition requires Basic + DA to be at least 50% of total remuneration, with excess allowances added back into wages. Everything computed on wages moves as a result: Provident Fund at 12%, gratuity accruing at roughly 4.81%, statutory bonus within the Payment of Bonus Act threshold, leave encashment and overtime.

If you take one thing from this article, take that. We have written about the 50% wage rule and what it does to payroll math separately, because it deserves the space.

The Industrial Relations Code, 2020

This 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 line to internalise. A fixed-term contract in India is not a way to employ someone on lesser terms. It changes the duration of the engagement, not the entitlements attached to it.

The Code on Social Security, 2020

This consolidates what were previously 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 dropped from five years to one. Combined with the larger wage base, gratuity liabilities have risen industry-wide. Whether an employer funds that liability or merely records it is a question worth asking directly.

The OSH Code, 2020

Occupational Safety, Health and Working Conditions covers working hours, overtime computed on the new wage base, and leave entitlements.

It also carries two requirements that catch employers out precisely 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. Neither is expensive. Both are the kind of thing an inspection asks for and an unprepared employer cannot produce.

What this means if you already employ in India

The risk is not that your 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 surfaces later — in a due-diligence review, an inspection, or an employee query about a Provident Fund balance that does not reconcile with their payslips.

The fix is structural. Filing more carefully against the wrong base does not help.

What this means if you are about to

Very little, which is the point. Employment structured on the current framework from day one has no gap to discover.

That is how we build it: salary structures designed on the 50% rule from the start, statutory contributions computed on the correct base, gratuity provisioned and funded from month one, and appointment letters and registers as standard rather than as remediation. Our Employer of Record service covers the whole layer.

What is still moving

The Codes are in force. 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 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. Our compliance calendar tracks them state-wise for exactly that reason, and we track every notification as it is issued.

For the full treatment, including how we implement each change, see our Labour Codes hub.

• labour codes 2025 summary
• Code on Wages
• OSH Code
• compliance