Legal Update – From Legislation To Action – Tracking The New Labour Codes

Introduction

In one of the most significant and awaited legislative developments in India's labour landscape, the Ministry of Labour and Employment, Government of India (“Ministry”) has notified the implementation of the four (4) consolidated labour codes, namely the Code on Wages, 2019 (“COW”), the Industrial Relations Code, 2020 (“IR Code”), the Occupational Safety Health and Working Conditions Code, 2020 (“OSH Code”) and the Code on Social Security, 2020 (“SS Code”) (collectively, the “New Labour Codes / Codes”), with effect from 21 November 2025 (“Implementation Date”). These Codes subsume and rationalise twenty-nine (29) Central labour legislations and have been brought into force through Gazette notifications issued on the Implementation Date.

The shift to the New Labour Codes marks a transition from decades-old regulatory regime to a modern and unified framework governing wages, industrial relations, social security and workplace safety. Although the New Labour Codes received Presidential assent between 2019 and 2020, their implementation has taken place only after a period of more than five (5) years.

This landmark development sets in motion a major shift in India's labour governance framework, one that will require employers to revisit and realign their current employment practices. While the Ministry has indicated that, for the transitional period, the existing labour laws and their associated rules and notifications will continue to apply, with further clarity expected on this aspect, the New Labour Codes now stand implemented, making it imperative for organisations to commence preparations for compliance.

Mapping the Operational Provisions

As on the Implementation Date, the provisions of the IR Code and the OSH Code have been notified in full; however, only selected provisions of the COW and the SS Code have been brought into effect. The remaining provisions under both Codes are expected to be notified in subsequent phases, once the corresponding Central and State Rules and supporting operational frameworks are finalised.

Set out below are the provisions of the COW and the SS Code that have been brought into force:

Key Business-Aligned Reforms Introduced Under the New Labour Codes

The provisions introduced include a set of reforms that, in practice, are likely to offer meaningful operational advantages to employers/business houses. Some of them are discussed in brief below.

COW

• Rectification opportunity before initiation of prosecution: Section 54(3) of the COW provides that, for certain first-time offences, such as non-maintenance of prescribed registers, the Inspector-cum-Facilitator must issue a written direction granting the employer an opportunity to rectify the non-compliance before initiating prosecution. If the employer remedies the lapse in accordance with the direction, prosecution will not be pursued.

• Composition of offences: Section 56 allows for the composition of certain offences that are not punishable with imprisonment. For first-time violations, employers may file application for compounding the offence (either before or after initiation of prosecution), by paying fifty (50) percent of the maximum prescribed penalty, thereby avoiding prolonged proceedings.

SS Code

• Exit option for establishments that have voluntarily opted into PF or ESI coverage:Sections 1(5) and 1(7) of the SS Code introduces an important reform for employers that have voluntarily brought their establishments under the Provident Fund (“PF”) or Employees' State Insurance (“ESI”) framework. Significantly, the SS Code now creates a corresponding mechanism to opt out of such voluntary coverage. An employer may now apply for withdrawal from the voluntarily extended PF or ESI regime, subject to securing the agreement of a majority of employees and complying with any conditions prescribed by the relevant authorities. This is a notable departure from the current regime, which does not provide any exit route once voluntary coverage has been extended.

• Limitation period of five (5) years for initiating proceedings in respect of PF and ESI: Section 125 of the SS Code stipulates that no proceedings may be initiated after five (5) years from the date on which the cause of action arises in matters relating to the applicability of PF/ESI provisions or the non-payment of PF/ESI dues. By clearly capping the initiation window, the provision brings predictability and aligns PF/ESI enforcement with general limitation principles. This change will prohibit retrospective demands beyond five (5) years which was earlier practiced by the PF regulators. While a similar restriction already existed under the ESI Act, this shift represents a significant reform from a PF standpoint.

OSH Code

• Employment of female workforce in night shift:  The OSH Code, pursuant to Section 43, now permits the employment of women in night shifts, subject to obtaining their consent and ensuring compliance with prescribed conditions relating to safety, holidays, and working hours. This marks a significant shift from the current framework and aims at boosting women participation, thereby achieving a more inclusive workforce participation.

• Narrowed definition of “contract labour” under the OSH Code: Under the OSH Code, “contract labour” includes workers engaged through a contractor in connection with the work of an establishment, and it expressly covers migrant workers as well as part-time employees of contractors. However, the definition excludes those workers who (i) are regularly employed by the contractor for activities of the contractor's own establishment; (ii) have mutually accepted terms and conditions of employment (including permanent employment); and (iii) receive periodical increments, social security benefits, and other welfare entitlements as required under applicable laws.

Due to this exclusion, certain individuals who were previously treated as contract labour under the Contract Labour (Regulation and Abolition) Act, 1970 (such as permanent employees of a contractor who receive increments, social security coverage, and provide on-site services to a client) will no longer fall within the scope of “contract labour” under the OSH Code. As a result, the definition has been considerably narrowed, reducing the obligations and liabilities of the principal employer in respect of such individuals.

IR Code

• Enhanced flexibility for employers in retrenchment, lay-off and closure:
  The threshold for seeking prior government permission for retrenchment, lay-off and closure has been increased from one hundred (100) workers to three hundred (300). Establishments employing up to three hundred (300) workers may now undertake such actions without obtaining prior government approval, thereby allowing employers greater operational flexibility and reducing procedural hurdles. This enhancement is expected to materially ease operational decision-making for small and mid-sized establishments. Notably, the threshold of three hundred (300) workers cannot be reduced under the new regime by the appropriate government. This represents a departure from the earlier framework, under which State governments had the flexibility to either increase or decrease the threshold prescribed under the Central law.

• Revised applicability threshold for Standing Orders:  The IR Code harmonises and increases the applicability threshold for certified Standing Orders. While the earlier regime prescribed varied thresholds depending on the State amendments, the IR Code has standardised the requirement by mandating Standing Orders only for establishments employing three hundred (300) or more workers. This uniform threshold significantly reduces the compliance burden for mid-sized establishments and brings much-needed consistency across States, where thresholds previously varied.

• Time limit for raising individual disputes:  The IR Code prescribes a two (2) year limitation period for raising individual disputes relating to discharge, dismissal, retrenchment or termination. This limit is intended to promote timely initiation of disputes and to prevent stale claims.

• Strike Notice: The IR Code introduces a uniform and more stringent notice regime for strikes across all establishments. Under the earlier regime, such restrictions i.e. notifying fourteen (14) days in advance applied only to public utility services. This will prohibit sudden strikes, thereby promoting predictability, and reducing the likelihood of sudden disruptions to business operations.

In addition to the above, there are certain key beneficial updates relating to registrations and licences such as:

• Single Registration, Licence and Return: A unified system for registration, licence, and return filing will be introduced under the new regime. Once implemented, this measure is expected to significantly ease compliance for employers.

• No fresh registration required under the SS Code for already-registered establishments: The SS Code requires every covered establishment to obtain registration in the prescribed manner. However, any establishment already registered under an existing Central labour law will not be required to apply afresh. Such registrations will be deemed valid for the purposes of the SS Code, thereby preventing duplication and reducing administrative burden.

While the New Labour Codes introduce several employer-oriented developments, as discussed above, they also significantly strengthen employee protections. Key employee-beneficial measures include:

• Extending the statutory right to minimum wages for all employees and promoting formalisation of employment by mandating issuance of appointment letters to them;

• Extending social security benefits to platform and gig workers, and mandating benefits for fixed term employees at par with permanent workers, including gratuity entitlement on a pro-rata basis notwithstanding completion of five (5) years of continuous service;

• Additional employee-centric reforms include the requirement to obtain prior consent for overtime work (under the OSH Code), the obligation to pay wages upon severance (including in cases of resignation) within two (2) days of cessation of employment, and statutory restrictions on deploying contract workers in core business activities, among others; and

• The IR Code introduces a new requirement whereby every employer effecting retrenchment will be mandated to contribute an amount equivalent to fifteen (15) days' last drawn wages of each retrenched worker to a designated Worker Re-Skilling Fund. This measure is intended to support the upskilling and redeployment of displaced workers and represents a significant policy shift towards facilitating post-separation employability.

DSK Remarks

The New Labour Codes aims at simplifying and modernising the regulatory framework while simultaneously introducing several important compliance obligations for employers. Organisations will need to ensure that social security contributions are calculated on the new definition of “wages”, provide annual leave encashment to eligible workers, restructure CTCs, and constitute a grievance redressal committee, among other requirements.

However, the full implementation of the Codes will ultimately depend on the corresponding Central and State Rules, which would come into effect subsequently. Greater clarity from the Ministry in the coming weeks will be crucial for ensuring a smooth transition and addressing practical challenges arising from this phased implementation.

Notwithstanding these interim uncertainties, the broader intent of the New Labour Codes is clear i.e., to create a more streamlined, uniform and future-ready labour framework, one that is designed to enhance workforce protection, improve productivity, and expand social security coverage across sectors and all categories of employees. This overarching policy shift underscores the need for employers to proactively prepare for the transformative impact of the Codes.

Employers may therefore consider reviewing their HR policies, engagement practices, payroll structures and compliance frameworks to ensure preparedness. It is also important for organisations to evaluate the financial implications of the new regime, particularly with respect to cost structures, operational processes and workforce management.

Stay tuned as we continue to monitor further developments closely.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.