India’s labour landscape has finally stepped into a new era. With the four Labour Codes officially coming into force on 21 November 2025, the country

India’s Labour Code Revolution (2025)

What Really Changes for Your Salary, Job Security, Social Protection, and Final Settlement

India’s labour landscape has finally stepped into a new era. With the four Labour Codes officially coming into force on 21 November 2025, the country has executed its most ambitious labour reform since Independence. By sweeping away 29 outdated central laws and replacing them with a unified, modern regulatory framework, the government aims to create a labour ecosystem that is simpler for businesses, fairer for workers, and future-ready for a workforce where gig workers, freelancers, app-based riders and tech-enabled service providers form a fast-growing segment.

This article provides a detailed overview of the four Codes, explains the mandatory salary restructuring, outlines the impact on retirement payouts, breaks down the two-day Full & Final (FnF) settlement rule, and offers a balanced assessment of the reforms.

If you are an employer, HR professional, policy analyst, or employee trying to understand how your pay slip will change, this comprehensive guide is for you.

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1. The Four Pillars of India’s New Labour Architecture

For decades, labour governance in India struggled under a maze of overlapping laws. Definitions for simple terms like wages, employee, or working hours differed from Act to Act, causing confusion and compliance inconsistency.
The 2025 implementation unifies the system under four principal Codes:

1. Code on Wages, 2019 (CW)
   
2. Industrial Relations Code, 2020 (IR Code)
   
3. Code on Social Security, 2020 (SS Code)
   
4. Occupational Safety, Health and Working Conditions Code, 2020 (OSHWC Code)
   

A shared definition of “wages” across all four Codes is the cornerstone that links the reforms and triggers the most visible changes in your salary structure.

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2. Code on Wages, 2019 — What Changes for Every Employee

The Code on Wages merges the Minimum Wages Act, Payment of Wages Act, Equal Remuneration Act, and Payment of Bonus Act into a single unified law.

Key Features

(A) Universal Minimum Wage & National Floor Wage

For the first time, every worker — irrespective of sector — is legally guaranteed a minimum wage.

The Central Government will declare a National Floor Wage, acting as a lower bound below which no state can go. This is a structural push toward reducing regional wage disparity.

(B) Gender Equality

The Code mandates:

• Equal pay for equal work
  
• Zero discrimination in recruitment, wages or job conditions on the basis of gender
  

(C) Overtime at Double Rate

No matter the industry, overtime must now be paid at twice the ordinary wage rate.

(D) Section 17 – The Two-Day Full & Final Settlement Rule

One of the most employee-friendly reforms in recent history:

• Earlier, FnF settlements usually took anywhere from 30 to 90 days.
  
• Now, all dues (salary, leave encashment, incentives, arrears) must be paid within two working days of an employee’s separation — whether by resignation, termination, or retrenchment.
  
• Gratuity continues to follow its independent 30-day statutory payout rule.
  

This forces companies to digitise clearance processes, manage payroll more efficiently, and respect employee liquidity needs during transitions.

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3. The Industrial Relations Code, 2020 — Balancing Flexibility and Worker Protection

The IR Code consolidates laws governing trade unions, industrial disputes, and standing orders.

(A) Higher Threshold for Layoff and Retrenchment Approvals

Industries with up to 299 workers can now:

• Lay off
  
• Retrench
  
• Close operations
  

without prior government approval.
This is a major shift aimed at:

• encouraging mid-sized firms to scale,
  
• reducing fear of legal entanglements,
  
• making India more competitive for manufacturing.
  

(B) Fixed-Term Employment (FTE) Revolution

FTE is now recognised across all industries.
Employees under FTE:

• Must receive the same salary and benefits as permanent workers.
  
• Become eligible for gratuity after just one year of continuous service (instead of 5 years).
  

This normalises contract-based employment while preventing exploitation.

(C) Standing Orders Only for Establishments with 300+ Workers

This lightens compliance for smaller units, reducing legal paperwork.

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4. Code on Social Security, 2020 — India’s Biggest Expansion of Welfare Coverage

Arguably the most transformative of all four laws, the SS Code integrates nine previous social security laws such as EPF, ESI, Maternity Benefits Act, and more.

(A) Social Protection for Gig and Platform Workers

For the first time in Indian law:

• “Gig worker”
  
• “Platform worker”
  

are recognised as legal categories.
Companies such as food delivery, cab aggregators, and e-commerce platforms must contribute 1–2% of annual turnover (capped) to a Social Security Fund for such workers.

(B) Expanded EPFO and ESIC Coverage

Smaller establishments will now be brought into the fold, strengthening India’s formal social security ecosystem.

(C) Portable Benefits

A national database with UIN (Universal Identification Number) linked to Aadhaar will allow:

• benefit mobility across jobs,
  
• state border independence,
  
• smoother access for migrant workers.
  

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5. OSHWC Code — Safety, Working Conditions & Women’s Workforce Participation

The OSHWC Code merges 13 older laws, including the Factories Act and Mines Act.

(A) Formal Appointment Letters Now Mandatory

Every employee must receive:

• written appointment letter,
  
• role description,
  
• details of wages and benefits.
  

This drives formalisation and prevents disputes.

(B) Women Can Work Night Shifts in All Sectors

Including mining, manufacturing, and other hazardous jobs — provided:

• transport,
  
• security,
  
• consent, 
• safety protocols
  
  
  are ensured by the employer.

(C) Health Check-Ups

Free annual health check-ups are mandatory for workers above age 40 in notified establishments.

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6. Salary Restructuring Under the New “Wages” Definition — Why Your Take-Home Pay Will Fall

The most immediate and widespread impact of the Labour Codes is the 50% rule for wages.

The 50% Rule (Mandatory Wages Floor)

Under the new definition:

• Wages = Basic Pay + DA + Retaining Allowance
  
• These components must form at least 50% of total CTC.
  

Allowances such as HRA, travel allowance, special allowance, incentives, and bonuses cannot exceed 50% of CTC.
If they do, the excess is added back to the “wage” component for statutory calculations like:

• PF contribution
  
• Gratuity calculation
  
• ESI applicability
  

Illustration (CTC: ₹12,00,000 per year / ₹1,00,000 per month)

Component	Old Structure	New Mandatory Structure
Total Monthly CTC	₹1,00,000	₹1,00,000
Basic + DA	₹30,000	₹50,000
Allowances	₹70,000	₹50,000
Employee PF (12%)	₹3,600	₹6,000
Take-Home Salary	₹96,400	₹94,000
Employer PF	₹3,600	₹6,000

Outcome

• Take-home salary decreases slightly.
  
• Retirement savings grow significantly.
  
• Employer statutory cost increases.
  

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7. Gratuity Payout Gets a Boost — Especially for Contract and FTE Workers

Key Changes

• FTE employees get gratuity after 1 year, not 5 years.
  
• The gratuity calculation base becomes larger, as it must be at least 50% of CTC.
  

Example

Aspect	Earlier	New Rule
Wage Base	Basic Pay (say ₹30,000)	Minimum 50% of CTC (₹50,000)
Eligibility for FTE	5 years	1 year
Payout Amount	Lower	Up to 66% higher

This dramatically strengthens retirement and separation payouts for millions of contractual and gig-economy workers.

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8. The Two-Day Full and Final Settlement — A Landmark Worker Protection

Section 17 of the Code on Wages turns industry practice upside down.

Old Practice

• 30 to 90 days for FnF settlement.
  
• Delays caused financial stress, especially for low-income and mid-income employees.
  

New Mandatory Rule

All dues must be paid within 48 hours of the last working day.
This includes:

• unpaid salary
  
• leave encashment
  
• overtime
  
• incentives
  
• arrears
  

Gratuity continues to follow its 30-day rule but must be paid with interest if delayed.

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9. Significance of the Reforms — A Structural Makeover of Indian Labour

(A) For Industry

• Streamlined compliance
  
• Clarity on definitions
  
• Greater flexibility in hiring
  
• Easier scaling of workforce
  
• Digital-first inspection and reporting
  

(B) For Workers

• Guaranteed minimum wage
  
• Faster settlements
  
• Stronger retirement corpus
  
• Social security for gig workers
  
• Safer workplaces
  
• Mandatory formalisation
  

(C) For the Economy

• Boost to formal labour markets
  
• Stronger social protection
  
• Investment-friendly regulatory climate
  
• Improved ease of doing business
  

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10. Challenges in Transition

While the vision is strong, execution remains crucial.

(A) State-Level Implementation Variability

Labour is a concurrent subject; states must issue rules.

Differences in timelines can lead to uneven enforcement.

(B) Administrative Capacity

Bringing crores of gig workers into a national social security grid requires robust digital infrastructure.

(C) Cost Pressures on Employers

Higher wage base increases:

• PF liability
  
• gratuity expense
  
• compliance costs
  

smaller firms may feel the pinch initially.

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11. The Road Ahead — What Employers and Employees Must Prepare For

Employers should:

• Redesign salary structures.
  
• Update HRMS/payroll systems.
  
• Prepare internal FnF workflows for 48-hour compliance.
  
• Provide appointment letters to all workers.
  
• Re-evaluate staffing strategies under the new thresholds.
  

Employees should:

• Expect higher PF deductions.
  
• Anticipate reduced take-home but stronger long-term savings.
  
• Ensure accurate documentation of job role and benefits.
  
• Track gratuity contributions and eligibility.
  

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A New Social Contract Between Worker and Employer

The rollout of the four Labour Codes marks a turning point in India’s journey toward a modern labour ecosystem. While the shift may temporarily reduce liquidity for employees and increase compliance burdens for employers, the long-term advantages — professionalised employment contracts, social security for millions, a stronger retirement base, and fairer workplace protections — far outweigh the short-term discomfort.
This is more than a policy change; it is a redefinition of India’s economic foundation, setting the stage for a more organised, formal, and future-ready labour market.