India has introduced one of the biggest labour law reforms in decades. Instead of dozens of overlapping and outdated laws, the government has consolidated them into four simplified labour codes. These new labour codes directly affect salary structure, PF contribution, working hours, leave rules, hiring practices, and HR compliance.
If you are an employee, your in-hand salary and PF deduction may change.
If you run a company or manage HR, your payroll structure and compliance responsibilities will change.
This guide explains the new labour codes in India in plain language — what they are, why they were introduced, and what they actually mean in real life.
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In short: What are the new labour codes?
India’s new labour codes merge 29 old labour laws into 4 comprehensive codes. These codes aim to simplify labour regulations, improve compliance, and extend social security benefits to more workers.
The biggest practical impact comes from:
- Mandatory restructuring of salary components
- Higher basic pay (minimum 50% of salary)
- Higher PF contribution
- Changes in working hours and leave rules
- New compliance requirements for employers
We’ll break all of this down step by step.
What are the new labour codes in India?
The new labour framework consists of four central labour codes:
- Code on Wages, 2019
- Industrial Relations Code, 2020
- Occupational Safety, Health and Working Conditions Code, 2020
- Code on Social Security, 2020
Together, these four codes replace 29 central labour laws that were created over many decades.
Earlier, labour laws were:
- Fragmented
- Difficult to interpret
- Different for different states
- Hard to comply with
The new system tries to create one clear framework for wages, employment conditions, safety, and social security.
Why did the Government merge 29 labour laws?
To understand this reform, you need to understand the problem with the old system.
Problems with the old labour laws
- Multiple laws covered the same topic in different ways
- Definitions of “wages” differed across laws
- Compliance was paperwork-heavy
- Many workers were left outside social security coverage
- Employers often structured salaries to legally avoid PF and gratuity
For example:
- PF law defined wages one way
- Gratuity law defined wages another way
- Minimum Wages Act had a different approach
This led to confusion, disputes, and loopholes.
Objectives of the new labour codes
The government introduced the new labour codes to:
- Simplify labour laws
- Standardise wage definitions
- Increase social security coverage
- Improve ease of doing business
- Protect workers’ rights more clearly
- Reduce long-term litigation
In short, the aim is fewer laws, clearer rules, wider coverage.
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Quick summary of all 4 labour codes (at a glance)
Before we go deeper, here’s a simple overview table of all four codes and their biggest impact.
| Labour Code | Core Area | Biggest Practical Impact |
|---|---|---|
| Code on Wages, 2019 | Salary & wages | Basic pay must be at least 50% of total pay |
| Industrial Relations Code, 2020 | Hiring & firing | New rules for layoffs, retrenchment, strikes |
| OSHWC Code, 2020 | Working conditions | 12-hour workday allowed, safety standards |
| Social Security Code, 2020 | PF, ESIC, benefits | Gig workers included, wider PF coverage |
Most employees feel the maximum impact from the Code on Wages and Social Security Code, especially in terms of salary and PF.
Salary impact under the new labour codes (most searched topic)
This is where most confusion — and concern — comes from.
What changed in salary rules?
The Code on Wages, 2019 introduces a uniform definition of “wages” across labour laws.
Under the new definition:
- Basic pay + DA must form at least 50% of total remuneration
- Allowances (HRA, special allowance, bonuses, etc.) cannot exceed 50%
Earlier, many companies kept basic pay very low to reduce PF and gratuity.
That practice will no longer be valid.
What this means for employees
If your salary structure currently has:
- Low basic pay
- High allowances
Then after restructuring:
- Basic pay will increase
- PF contribution will increase
- Gratuity amount will increase
- In-hand salary may reduce (not always, but often)
Your CTC may remain the same, but the distribution changes.
Simple example (illustrative)
Earlier salary structure (example):
- Basic pay: ₹20,000
- Allowances: ₹30,000
- Total: ₹50,000
After wage code alignment:
- Basic pay: ₹25,000
- Allowances: ₹25,000
- Total: ₹50,000
PF is calculated on basic pay.
So PF deduction increases automatically.
This is why people say “my in-hand salary will reduce after new labour codes.”
We’ll cover detailed calculations later in this guide.
PF and gratuity impact (linked to salary changes)
Because PF and gratuity are calculated on wages:
- Higher basic pay = higher PF contribution
- Higher basic pay = higher gratuity payout
PF impact
- Employee PF contribution increases
- Employer PF contribution increases
- Long-term retirement savings improve
Gratuity impact
- Gratuity amount increases
- Better benefit for long-term employees
So while short-term take-home pay may reduce slightly, long-term benefits increase.
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Who benefits and who may feel a downside?
Beneficiaries
- Employees with long job tenure
- Employees planning retirement
- Gig and platform workers
- Workers earlier excluded from benefits
Possible downside
- Employees focused only on monthly in-hand pay
- Companies with aggressive allowance-heavy salary structures
This is a shift from short-term cash to long-term security.
Working hours under the new labour codes (clearing the confusion)
One of the most misunderstood topics around the new labour codes is working hours, especially the claim that employees will be forced to work 12 hours a day.
Let’s separate fact from fiction.
What the law actually says
Under the Occupational Safety, Health and Working Conditions Code (OSHWC):
- Maximum weekly working hours remain capped at 48 hours
- Daily working hours can be structured flexibly
- Overtime must be paid beyond prescribed limits
- State governments are empowered to frame detailed rules
So the key point is:
Total weekly hours are capped, not unlimited.
Where did the “12-hour workday” idea come from?
Some states proposed allowing:
- 4 working days × 12 hours
- Instead of 6 working days × 8 hours
This is an option, not a compulsion.
It does not mean:
- Employees must work 12 hours daily
- Employers can ignore overtime rules
What this means in real life
For most employees:
- Daily work hours will remain similar to today
- Overtime rules will still apply
- Consent and state-level rules matter
For employers:
- Flexibility in shift planning
- Must maintain safety, rest intervals, and overtime compliance
The labour codes do not legalise exploitation.
They formalise flexibility with safeguards.
Overtime rules under the new labour codes
Overtime continues to be a legal right, not a favour.
Key overtime principles
- Overtime applies when working beyond prescribed hours
- Overtime wages must be higher than normal wages
- Employers must maintain overtime records
- State rules define exact thresholds
In simple terms:
Working extra hours without overtime pay is still illegal.
We’ll cover exact overtime calculation examples later in this guide.
Leave rules under the new labour codes
Leave rules are another area where employees worry about losing benefits.
What changes — and what doesn’t
The new labour codes:
- Consolidate leave-related provisions
- Allow states to prescribe detailed leave rules
- Aim to standardise minimum benefits
They do not remove leave entitlements.
Types of leave covered
Depending on the establishment and state rules, the following continue to apply:
- Annual / earned leave
- Casual leave
- Sick leave
- Weekly rest days
- National and festival holidays
The OSHWC Code focuses more on:
- Health
- Safety
- Working conditions
Leave specifics are mostly delegated to state rules, similar to the earlier system.
What employees should understand
- Your leave may not reduce automatically
- Company HR policies will still govern day-to-day leave
- Any change must comply with state rules
If your employer revises leave policy citing labour codes, it must be backed by notified rules, not assumptions.
Implementation status of the new labour codes
This is one of the most searched questions:
“When will the new labour codes be implemented?”
Current status (important)
- All four labour codes are passed by Parliament
- Central rules are largely framed
- State governments must notify their own rules
- Full implementation depends on states
That’s why implementation has been phased and delayed.
Why implementation is taking time
Labour is a concurrent subject, meaning:
- Both central and state governments are involved
- States need time to align rules
- Industry feedback is considered
- Systems like payroll and compliance need adjustment
This delay is procedural, not cancellation.
What you should realistically expect
- Changes will not happen overnight
- Employers will get transition time
- Salary restructuring may be phased
- Compliance checks will increase gradually
For employees, this means:
No sudden shock, but gradual alignment.
Who benefits and who may feel the impact
Every reform has winners and trade-offs.
Who benefits most
- Employees with long-term employment
- Workers previously excluded from PF or ESIC
- Gig and platform workers
- Employees nearing retirement
- HR teams seeking clarity and standardisation
Who may feel short-term discomfort
- Employees focused only on monthly take-home pay
- Employers using aggressive allowance-heavy salary structures
- Companies delaying compliance preparation
The overall direction is toward formalisation and security, not reduction of rights.
Old labour laws vs new labour codes (big picture)
To truly understand the reform, it helps to compare old vs new.
Earlier system
- 29 separate laws
- Different definitions of wages
- Multiple registers and filings
- Complex compliance
- Limited social security coverage
New system
- 4 comprehensive codes
- One wage definition
- Unified compliance framework
- Wider coverage
- Better enforcement clarity
This is a structural reform, not just a cosmetic change.
What this means for HR and employers
For HR teams, the labour codes mean:
- Salary structure redesign
- Payroll system updates
- Policy alignment
- Better documentation
- Fewer interpretational disputes
For employers:
- Compliance becomes clearer
- Penalties become stricter
- Long-term predictability improves
Ignoring these changes will be riskier than preparing for them.
Old labour laws vs new labour codes (clear comparison)
This section helps users quickly understand what actually changed.
Structural comparison
| Aspect | Old Labour Laws | New Labour Codes |
|---|---|---|
| Number of laws | 29 separate laws | 4 consolidated codes |
| Wage definition | Different in each law | Single, uniform definition |
| Salary structure | Allowance-heavy structures common | Basic + DA minimum 50% |
| PF & gratuity | Often minimized | Automatically increases with wages |
| Coverage | Limited, fragmented | Wider, more inclusive |
| Compliance | Multiple registers & filings | Simplified, unified approach |
| Gig workers | Mostly excluded | Included under social security |
This consolidation is why the reform is considered structural, not incremental.
How each labour code affects you (role-wise clarity)
For employees
- Higher basic pay and PF contribution
- Better long-term savings
- More clarity on working hours and overtime
- Formal recognition of rights
For HR professionals
- Salary structure redesign becomes necessary
- Payroll and compliance processes must be updated
- Fewer interpretational disputes
- Clearer audit trail
For employers
- Compliance becomes more predictable
- Penalties for non-compliance increase
- Long-term cost planning improves
- Less ambiguity in labour relations
Common myths vs reality
Myth 1: Employees must work 12 hours daily
Reality: Weekly working hours are capped at 48. Daily flexibility does not remove overtime or rest rules.
Myth 2: In-hand salary will always reduce
Reality: Not always. It depends on current salary structure. CTC may remain unchanged.
Myth 3: Labour codes are already fully implemented
Reality: Implementation depends on state-level notifications.
Myth 4: Leave benefits are removed
Reality: Leave continues. States and company policies govern specifics.
What employees should do now
- Understand your salary structure
- Track basic pay vs allowances
- Read HR communications carefully
- Ask questions if changes are unclear
- Focus on long-term benefits, not just take-home pay
Being informed is your biggest advantage.
What HR and employers should do now
- Review salary structures proactively
- Update payroll systems
- Train HR teams on new definitions
- Align policies with upcoming state rules
- Communicate changes transparently
Preparation is cheaper than penalties.
Detailed guides on each labour code (recommended reading)
If you want deeper clarity, read our detailed guides:
- Code on Wages, 2019 – Salary structure, basic pay rules, PF impact
- Industrial Relations Code, 2020 – Hiring, firing, layoffs, strikes
- OSHWC Code, 2020 – Working hours, leave, safety standards
- Social Security Code, 2020 – PF, ESIC, gratuity, gig worker benefits
These guides go step by step with examples and compliance insights.
Final takeaway
India’s new labour codes are designed to:
- Simplify labour laws
- Improve compliance
- Expand social security
- Protect workers in a modern economy
While short-term adjustments may feel uncomfortable, the long-term goal is clarity, fairness, and security.
This guide will be updated regularly as states notify rules and implementation progresses.
FAQ
Will my salary reduce after the new labour codes?
Your CTC usually remains the same, but higher basic pay may increase PF deduction. This can slightly reduce in-hand salary while improving long-term benefits.
Is the 50% basic salary rule mandatory?
Yes. Under the Code on Wages, basic pay plus dearness allowance must be at least 50% of total remuneration.
When will the new labour codes be implemented?
The labour codes are passed by Parliament, but full implementation depends on state governments notifying their respective rules.
Will PF contribution increase for everyone?
PF contribution increases only if your basic pay increases. Employees who already have a high basic pay may see little or no change.
Do the labour codes apply to all employees?
Most provisions apply broadly, but coverage and thresholds differ based on the size of the establishment and state-specific rules.
Are gig workers really covered now?
Yes. The Social Security Code introduces a framework to extend social security benefits to gig and platform workers, which did not exist earlier.
Can employers change salary structure without consent?
Salary restructuring must follow employment contracts, HR policies, and applicable labour laws. Arbitrary changes without due process are not permitted.