India’s New Labour Codes 2026: The Definitive Implementation Guide
The notification of India’s four New Labour Codes on November 21, 2025, marked a historic pivot in the nation’s industrial jurisprudence. For Central Public Sector Enterprises (CPSEs) and private organizations, this transition involves moving from 29 fragmented, colonial-era laws to a modern, unified framework. However, as of February 2026, the landscape is defined by a “Commencement Phase” where many provisions are active while specific operational rules remain in draft form.
Industrial Relations Code (Amendment) Bill, 2026: Parliament recently passed this bill to provide statutory clarity on the repeal of legacy laws (e.g., Trade Unions Act, 1926), ensuring a smooth legal transition and minimizing litigation risks for employers.
1. The Legislative Mapping: 29 Old Laws to 4 Codes
This consolidation is designed to simplify compliance. Below is the verified mapping of the repealed laws:
I. Code on Wages, 2019
Consolidates 4 key enactments:
- Payment of Wages Act, 1936
- Minimum Wages Act, 1948
- Payment of Bonus Act, 1965
- Equal Remuneration Act, 1976
II. Industrial Relations Code, 2020
Consolidates 3 laws governing industrial harmony:
- Trade Unions Act, 1926
- Industrial Employment (Standing Orders) Act, 1946
- Industrial Disputes Act, 1947
III. Code on Social Security, 2020
Consolidates 9 laws regarding employee safety nets:
- Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
- Employees’ State Insurance Act, 1948
- Payment of Gratuity Act, 1972
- Maternity Benefit Act, 1961
- Employees’ Compensation Act, 1923
- Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
- Cine-Workers Welfare Fund Act, 1981
- BOCW Welfare Cess Act, 1996
- Unorganised Workers’ Social Security Act, 2008
IV. OSH & Working Conditions Code, 2020
Consolidates 13 laws governing the work environment:
- Factories Act, 1948 & Mines Act, 1952
- Contract Labour (Regulation & Abolition) Act, 1970
- Inter-State Migrant Workmen Act, 1979
- Plantations Labour Act, 1951
- Dock Workers (Safety, Health & Welfare) Act, 1986
- Beedi and Cigar Workers (Conditions of Employment) Act, 1966
- Working Journalists Acts (1955 & 1958)
- Motor Transport Workers Act, 1961
- Sales Promotion Employees (Conditions of Service) Act, 1976
- Cine-Workers and Cinema Theatre Workers Act, 1981
- BOCW (Regulation of Employment) Act, 1996
2. Key Provisions: Detailed Mode-by-Mode Breakdown
Code on Wages: Financial & Payroll Impact
- 50% Wage Definition (Draft Status): Under the Code, Basic Pay + DA + Retaining Allowance must ideally be ≥50% of total remuneration. While Draft Rules detail the 50% allowance cap, firms should treat this as a blueprint for upcoming salary restructuring rather than a currently enforced mandate.
- National Floor Wage: The framework allows the Central Government to fix a floor wage that acts as a mandatory baseline for all State-level minimum wages.
- 48-Hour Wage Settlement: Section 17(2) stipulates wage payment within two working days of exit. Full F&F (including all benefits) settlement within this timeframe is a major discussion point in pending final rules.
- Gender Parity: Strengthened anti-discrimination clauses in recruitment and wages for all genders.
Industrial Relations: Operational Flexibility
- Layoff Threshold: Prior government permission for layoffs/retrenchment is now required only for establishments with 300+ workers (previously 100).
- Fixed-Term Employment (FTE): FTE is now formally recognized. Workers receive pro-rata benefits (including 1-year gratuity eligibility) equivalent to permanent staff.
- Re-skilling Fund: A new mandate requiring 15 days’ wages contribution per retrenched worker for their future training.
- Strike Notice: A 14-day notice period is now proposed as a universal requirement for strikes.
Social Security & OSH: Welfare Standards
- Gratuity Shift: 1-year eligibility for gratuity is established for Fixed-Term Employees.
- Gig Workers: The Code provides for a Social Security Fund for gig/platform workers, with contribution mechanisms (drafted at 1-2% of turnover) currently under finalization.
- Overtime (OT): OT must be double the normal wage. Draft rules propose rounding 15-30 mins of extra work to a full 30 mins.
- Night Shifts for Women: Enabling provision for night shifts (7 PM – 6 AM) subject to safety protocols and written consent.
3. Compliance Checklist for Finance & HR
| Focus Area | Recommended Action (Q1 2026) | Impact |
|---|---|---|
| Payroll Audit | Run shadow payrolls based on the 50% Basic+DA rule. | Budgetary Prep |
| Liability Revaluation | Assess Ind AS 19 implications for the higher wage base. | Balance Sheet Prep |
| Contractual Staff | Update FTE contracts for 1-year gratuity eligibility. | Social Security Compliance |
| Exit Processes | Review ‘No Dues’ speed in light of the 48-hour wage rule. | Process Efficiency |
4. Technical Impact Assessment: Ind AS 19 & The 50% Rule
Under Ind AS 19 (Employee Benefits), any change in the benefit formula or legislative requirement that increases the liability for past service must be accounted for immediately. This makes the 50% wage rule a significant “Plan Amendment” event for CPSE balance sheets.
The “Past Service Cost” Trigger
The revised wage definition under the New Labour Codes acts as a statutory trigger. Because Gratuity is traditionally calculated based on the last drawn wages, the structural jump in the wage base affects the entire tenure served by an employee.
Accounting Treatment: Under Ind AS 19, this increase is recognized as Past Service Cost. Unlike actuarial gains/losses which flow through OCI, this must be charged to the Statement of Profit and Loss (P&L) immediately in the period the change is finalized. It cannot be deferred.
Actuarial Assumptions vs. Structural Shifts
- Experience Adjustment: Normal salary hikes based on internal policy (accounted for in OCI).
- Structural Amendment: The legislative 50% rule change (accounted for in P&L).
Key Risk: Organizations with a low “Basic-to-CTC” ratio (e.g., 25–30%) could see their total Gratuity and Leave Encashment liabilities spike by 20–40% in a single fiscal year.
5. Salary Component Comparison: Pre- vs. Post-Code
This comparison demonstrates how a fixed Monthly CTC of ₹1,00,000 is redistributed to satisfy the 50% rule. While the company’s total cost remains neutral, the internal allocation between “Cash in Hand” and “Retirement Benefits” shifts.
| Component | Pre-Code Structure | Post-Code (50% Rule) | Change Impact |
|---|---|---|---|
| Basic + DA | ₹30,000 (30%) | ₹50,000 (50%) | Higher Statutory Base |
| HRA & Allowances | ₹60,000 | ₹38,000 | Reduced to Balance CTC |
| Employer PF (12%) | ₹3,600 | ₹6,000 | Higher Company Outgo |
| Gratuity Prov. (4.81%) | ₹1,443 | ₹2,405 | Higher Liability |
| Employee PF (12% Ded.) | (₹3,600) | (₹6,000) | Higher Deduction |
| Monthly Take-Home | ₹81,357 | ₹77,595 | Reduced by ~5% |
Note: In this scenario, the total cost to the employer is kept constant at ₹1,00,000. To fund the higher statutory PF and Gratuity, flexible allowances are reduced, resulting in higher long-term savings but lower monthly disposable income.
Disclaimer: This article is for informational purposes only. As rules are still being finalized by Central and State governments, organizations are advised to consult legal experts before initiating structural changes to their payroll or HR policies.