New Labour Codes in India 2025: Complete Guide to Changes in Salary, PF, ESI, and Working Conditions

Introduction

India has embarked on its most ambitious labour law reform since independence. After years of debate and preparation, the country has finally implemented four consolidated Labour Codes that replace 29 separate labour laws enacted over nearly a century. This transformation, which came into effect on November 21, 2025, represents a fundamental shift in how India regulates employment, worker protection, and business compliance.

The reform aims to simplify the complex web of labour regulations while expanding social security coverage to millions of workers who were previously left out. For employees, employers, and businesses across India, understanding these changes is crucial as they directly impact salary structures, provident fund contributions, working hours, overtime pay, gratuity eligibility, and workplace safety standards.

Whether you’re an employee wondering how your take-home salary will change, an employer trying to understand new compliance requirements, or a gig worker curious about social security coverage, this comprehensive guide breaks down everything you need to know about India’s new labour codes.

Main Highlights of New Labour Codes 2025

The new Labour Codes introduce sweeping changes across multiple aspects of employment that will directly impact every worker and employer in India:

💰 Salary: Basic pay must now constitute at least 50% of your total compensation, significantly impacting take-home salary and statutory benefits.

⏰ Overtime: Clear overtime rules now apply universally, with mandatory compensation at twice the normal rate for work beyond standard hours.

🛡️ Social Security: Revolutionary expansion—coverage now includes gig workers, platform workers, and unorganized sector employees (over 500 million workers previously excluded).

🏦 Provident Fund (PF): Higher contributions due to increased basic pay percentage, building a substantially larger retirement corpus.

🏥 ESI (Employee State Insurance): Extended coverage with modified thresholds and simplified registration process.

🌙 Night Shift: Women can now work night shifts across all industries with appropriate safety measures and consent—gender restrictions eliminated.

💼 Gratuity: Game-changing reform—fixed-term employees become eligible after just one year instead of five years of continuous service.

📄 Appointment Letter: Mandatory written appointment letters for all employees with clearly stated terms and conditions.

⚙️ Working Conditions: Uniform safety standards nationwide, free annual health checkups for workers above 40, and complete elimination of discriminatory gender-based employment restrictions.

The Big Change: 29 Old Laws Merged into 4 Labour Codes (Effective November 21, 2025)

The implementation date of November 21, 2025, marks a watershed moment in Indian labour history. On this day, 29 central labour laws—some dating back to the colonial era—were officially replaced by four comprehensive codes.

What Were the Old 29 Laws?

The old system included laws like:

• Payment of Wages Act (1936)
• Minimum Wages Act (1948)
• Industrial Disputes Act (1947)
• Factories Act (1948)
• Employees’ Provident Funds Act (1952)
• Payment of Bonus Act (1965)
• Payment of Gratuity Act (1972)
• Trade Unions Act (1926)
• Maternity Benefit Act (1961)
• Employees’ State Insurance Act (1948) …and 19 others.

Why Was Consolidation Necessary?

Each of these 29 laws had its own definitions, thresholds, registration requirements, and compliance mechanisms, creating a compliance nightmare for businesses and leaving massive gaps in worker protection.

The Problems:

• A single workplace had to comply with 10-15 different laws simultaneously
• Each law required separate registrations, returns, and inspections
• Small and medium enterprises struggled under this burden, often operating informally to avoid complexity
• Approximately 90% of India’s workforce in the unorganized sector had virtually no legal protection
• New employment types (gig workers, platform workers, work-from-home) weren’t recognized

The Solution: The consolidation reduces 1,232 legal provisions to just 480—a remarkable 61% reduction that enhances clarity without compromising worker rights. More importantly, it extends statutory protection to employment categories that didn’t exist when the old laws were written.

Understanding the New 4 Labour Codes

India’s labour regulation framework now rests on four comprehensive pillars:

1. Code on Wages, 2019

Replaces: Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act, Equal Remuneration Act (4 laws)

Key Features: Establishes a national floor wage applicable across all states, mandates minimum basic pay percentages (50% rule), and ensures equal pay for all genders including transgender persons.

2. Industrial Relations Code, 2020

Replaces: Industrial Disputes Act, Trade Unions Act, Industrial Employment (Standing Orders) Act (3 laws)

Key Features: Provides operational flexibility to businesses (retrenchment threshold raised to 300 workers) while introducing worker protection measures like the mandatory Reskilling Fund. Formally recognizes modern employment arrangements like fixed-term contracts and work-from-home.

3. Code on Social Security, 2020

Replaces: Employees’ Provident Funds Act, Employees’ State Insurance Act, Maternity Benefit Act, Payment of Gratuity Act, and 5 others (9 laws)

Key Features: Revolutionary expansion of social security to gig workers, platform workers, and the unorganized sector. Introduces platform company contribution requirements and reduces gratuity eligibility from 5 years to 1 year for fixed-term employees.

4. Occupational Safety, Health and Working Conditions Code, 2020

Replaces: Factories Act, Mines Act, Contract Labour Act, and 10 others (13 laws)

Key Features: Establishes uniform safety standards nationwide, mandates free annual health checkups for workers above 40, eliminates discriminatory gender-based employment restrictions, and creates a National OSH Board for standardized safety protocols.

Detailed Breakdown: What Changes and How It Affects You

1. Salary Structure: The 50% Basic Pay Rule

What’s Changing:

The most immediate impact for salaried employees is the mandatory restructuring of salary components. Under the old system, employers often kept basic pay at 30-40% of the Cost to Company (CTC), loading the remainder into allowances like House Rent Allowance, Special Allowance, and various perquisites. This practice minimized employer contributions to statutory benefits.

New Rule: Basic pay must now constitute at least 50% of total remuneration. If your CTC is ₹60,000 per month, your basic salary must be at least ₹30,000.

Impact on Your Pocket:

• Take-home salary decreases slightly because deductions (PF, ESI, professional tax) are calculated on basic pay
• Employer’s PF contribution increases substantially
• Your own PF contribution increases, building a much larger retirement corpus
• Gratuity calculations improve as they’re linked to basic pay

Real Example:

• Current: Basic ₹20,000 (33% of ₹60,000 CTC) → Annual PF contribution = ₹28,800
• New: Basic ₹30,000 (50% of ₹60,000 CTC) → Annual PF contribution = ₹43,200
• Extra retirement savings: ₹14,400 per year

Over a 30-year career, this difference compounds into several lakhs of additional retirement savings, providing greater financial security in old age.

2. Provident Fund (PF): Building a Bigger Retirement Corpus

Old System: With basic pay at 30-35% of CTC, PF contributions were relatively lower.

New System: With basic pay mandated at 50% of CTC, PF accumulation accelerates significantly.

How PF Works:

• Both employee and employer contribute 12% of basic pay plus dearness allowance to the Employees’ Provident Fund
• This money accumulates with interest (currently around 8.15% annually)
• You can withdraw it upon retirement or under specific circumstances

Impact Example: For a ₹60,000 monthly CTC:

• Old: Annual PF contributions = ₹57,600 (at 33% basic)
• New: Annual PF contributions = ₹86,400 (at 50% basic)
• Difference: ₹28,800 extra per year

Over a 30-year career, this translates to several lakhs of additional retirement savings, with compounding interest making the difference even more substantial.

3. ESI (Employee State Insurance): Healthcare for More Workers

What is ESI? ESI provides medical and cash benefits to employees and their families in case of sickness, maternity, disability, or death due to employment injury.

Coverage Under New Code:

• Employees earning up to ₹21,000 per month are covered (increased from ₹15,000)
• Contribution: Employees pay 0.75%, employers pay 3.25% of wages
• Benefits include medical treatment, sickness benefit, maternity benefit, disablement benefit, and dependents’ benefit

What’s New:

• Simplified registration processes
• Fixed-term employees now covered under ESI
• Better coordination between ESIC hospitals and empanelled private hospitals
• Digital health cards for easier access

4. Social Security: The Game-Changer for 500 Million Workers

This is perhaps the most revolutionary aspect of the new codes. For the first time in Indian history, social security extends beyond the organized sector to cover workers who were completely left out.

Who Gets Coverage Now?

Gig and Platform Workers:

• Delivery partners (Swiggy, Zomato, etc.)
• Cab drivers (Ola, Uber, etc.)
• Freelancers on digital platforms
• Home-based workers

How It Works:

• Aggregators (platform companies) must contribute 1-2% of their annual turnover
• Contribution capped at 5% of amounts paid to platform workers
• Creates a social security fund for accident insurance, health benefits, and old-age protection

Unorganized Sector Workers:

• Construction workers
• Agricultural laborers
• Domestic workers
• Street vendors
• Beedi workers

Benefits Include:

• Life and disability cover
• Health and maternity benefits
• Old age protection
• Accident insurance

Inter-State Migrant Workers:

• Journey allowances for travel
• Suitable residential accommodation
• Portability of benefits—social security travels with workers across state borders
• Registration with labor authorities

Impact: Over 500 million workers who had zero social security coverage now have statutory entitlements. This fundamentally changes India’s workforce protection landscape.

5. Gratuity: Faster Eligibility for Fixed-Term Workers

Gratuity is a lump-sum payment made by employers to employees as a token of appreciation for services rendered.

Old Rule (Payment of Gratuity Act, 1972):

• Required 5 years of continuous service to be eligible
• Fixed-term contract workers rarely qualified
• Only permanent employees benefited

New Rule (Code on Social Security, 2020):

• Fixed-term employees eligible after just 1 year of service
• Gratuity calculated on pro-rata basis
• Applies to all types of employment contracts

Calculation Formula: Gratuity = (Basic Pay + DA) × 15/26 × Number of years of service

Real Impact: If you’re on a 2-year fixed-term contract with ₹30,000 basic pay:

• Old system: ₹0 gratuity (didn’t complete 5 years)
• New system: ₹34,615 gratuity (after 2 years)

This significantly improves the financial deal for contract workers and recognizes that modern employment often involves shorter tenures.

6. Appointment Letter: Written Documentation Made Mandatory

Old System:

• Many workers, especially in smaller establishments and unorganized sector, worked without any written documentation
• Led to disputes over salary, job role, working conditions
• Workers had no proof of employment

New System: Every employee must receive a written appointment letter or employment contract clearly stating:

• Job role and responsibilities
• Salary structure and all components
• Working hours and leave entitlements
• Terms of employment and notice period
• Termination clauses and conditions

Benefits:

• Legal clarity for both employees and employers
• Reduces disputes and misunderstandings
• Provides documentary proof of employment
• Ensures transparency in employment terms

7. Working Hours and Overtime: Clear Compensation Rules

Standard Working Hours:

• Maximum 8 hours per day
• Maximum 48 hours per week
• Provisions for flexible arrangements with worker consent

Overtime Rules:

Old System:

• Overtime rules varied across different Acts
• Not uniformly enforced
• Many workers worked extended hours without proper compensation

New System:

• Work beyond standard hours attracts mandatory overtime pay
• Overtime rate: Twice the normal hourly rate
• Must be recorded and compensated properly
• Applicable across all sectors uniformly

Weekly Off:

• Every worker entitled to at least one day off per week
• Typically Sunday, or compensatory off if required to work
• Cannot be denied

Example: If your hourly rate is ₹200:

• Normal working hour: ₹200/hour
• Overtime (beyond 8 hours/day): ₹400/hour

Impact: Clear overtime rules prevent exploitation and ensure workers are fairly compensated for extended hours. For employers, this necessitates better workforce planning and time management.

8. Safety and Working Conditions: Universal Protection

The Occupational Safety, Health and Working Conditions Code introduces several progressive measures that apply to all establishments:

Annual Health Checkups:

• Free health examinations for all workers aged 40 and above
• Applies regardless of industry or establishment size
• Preventive healthcare measure to detect occupational diseases early
• Employer’s responsibility to arrange and bear costs

Women’s Employment – End of Discriminatory Restrictions:

Old Laws (Factories Act, Mines Act):

• Women prohibited from night shifts in factories
• Women banned from underground mining work
• Women restricted from certain hazardous industries
• Stated reason: “protection” but actually limited opportunities

New Code:

• All gender-based restrictions eliminated
• Women can work in all establishments
• Women can work night shifts (6 PM to 6 AM)
• Women can work in underground mines
• Women can work in hazardous industries

Conditions Required:

• Written consent from the woman employee
• Adequate lighting and safe transportation
• Proper restroom and changing facilities
• Security measures in place
• Equal safety equipment and training

Impact: Shift from paternalistic “protection” to empowerment—women get equal opportunities with proper safety measures for everyone.

National OSH Board:

• Centralized body to set uniform safety standards across all states
• Replaces fragmented state-level regulations
• Ensures consistency in safety protocols
• Regular audits and enforcement

Workplace Safety Requirements:

• Mandatory safety equipment provision
• Regular safety training programs
• Emergency evacuation plans
• First aid facilities
• Proper ventilation, lighting, drinking water
• Strict penalties for violations

Old Laws vs. New Codes: Side-by-Side Comparison

Aspect	Old Labour Laws	New Labour Codes
Number of Laws	29 separate Acts	4 consolidated Codes
Total Legal Provisions	1,232 provisions	480 provisions (61% reduction)
Basic Pay Requirement	No minimum — usually 30–40% of CTC	Mandatory minimum 50% of CTC
Gratuity (Fixed-term)	5 years continuous service required	1 year service sufficient
Social Security Coverage	Organized sector only (~55M workers, 19% coverage)	Includes gig, platform, and unorganized workers (~500M workers, 64% coverage)
Retrenchment Approval	Required for establishments with 100+ workers	Required for establishments with 300+ workers
Reskilling Support	None provided	15 days’ wages per retrenched worker
Women’s Night Shifts	Prohibited in most industries	Allowed with safety and consent
Women in Hazardous Work	Prohibited in mines & certain industries	Allowed with safety and consent
Health Checkups	Not mandated	Free annual checkups for workers aged 40+
Registration System	Multiple separate registrations	Single unified registration
First-time Violations	Criminal penalties, imprisonment possible	Monetary penalties & compliance support
Fixed-term Employment	Not formally recognized	Legally recognized with full benefits
Platform/Gig Workers	No coverage	Mandatory social security contributions
Appointment Letters	Not mandatory universally	Mandatory for all employees
Overtime Pay	Varied and poorly enforced	Standardized at 2× normal wage
Inter-State Migrants	Limited protection under 1979 Act	Full protection with benefit portability
Compliance Inspections	Multiple inspectors, repeated visits	Single online, system-driven inspection
Equal Pay Provision	Focused on women under Equal Remuneration Act	Extended to all genders including transgender

Conclusion

India’s new Labour Codes represent a bold reimagining of the country’s employment framework. By consolidating 29 fragmented laws into four comprehensive codes, the reform achieves both simplification and expansion—simpler compliance for businesses, expanded protection for workers.

The immediate impacts are tangible: restructured salaries with higher basic pay, increased PF contributions building larger retirement savings, gratuity for fixed-term workers, and most significantly, social security for 500 million workers who were previously excluded. The shift from punitive to facilitative enforcement, unified registration systems, and decriminalization of minor violations create a more mature regulatory environment.

However, challenges remain. Implementation depends heavily on state-level rules, which are still being finalized in several states. Trade unions worry about weakened protections, while businesses welcome the flexibility. The true test of these codes will be in their execution—whether the promised social security benefits actually reach gig workers and unorganized sector employees, whether the unified registration system truly reduces compliance burden, and whether the balance between business flexibility and worker protection proves sustainable.

For now, workers should understand how their salary structures will change, recalculate their retirement planning with higher PF contributions, and familiarize themselves with new entitlements like annual health checkups and gratuity provisions. Employers need to restructure compensation, update HR policies, ensure unified registrations, and train their teams on the new compliance framework.

India’s labour ecosystem is entering a new era. With over 500 million workers now covered under statutory social security for the first time, and with clarity replacing complexity in compliance, these codes have the potential to transform how India works—if implemented effectively and enforced fairly.