Labour Code Checklist for Employers in India (2026)

Short answer: With the new Labour Codes now in effect, employers must immediately review and restructure employee salary components to comply with the new definition of 'wages'. It's critical to update HR policies for leave, working hours, and full and final (F&F) settlement, which is now due within two days. You must also ensure social security compliance for all types of workers, including gig and platform workers, and transition to digitised record-keeping.

What are the four new Labour Codes?

The four new codes consolidate and simplify 29 previous central labour laws into a more streamlined framework. They are:

1. The Code on Wages, 2019: This code consolidates laws relating to wages, bonuses, and related matters. Its most significant feature is the universal new definition of 'wages'.
2. The Industrial Relations Code, 2020: This code deals with trade unions, conditions of employment in industrial establishments, and the investigation and settlement of industrial disputes.
3. The Code on Social Security, 2020: This aims to extend social security benefits like PF, ESI, gratuity, and maternity benefits to all employees and workers, including those in the unorganised sector, gig workers, and platform workers.
4. The Occupational Safety, Health and Working Conditions (OSH) Code, 2020: This code consolidates laws regulating health, safety, and working conditions in establishments, covering a wide range of workers.

How does the new definition of 'wages' impact payroll?

The new, uniform definition of 'wages' significantly impacts payroll calculations and is the most critical change for employers. The Code on Wages, 2019, mandates that allowances (the 'exclusions' part of a salary) cannot exceed 50% of the total remuneration. This means that your 'basic pay', dearness allowance (DA), and retaining allowance must constitute at least 50% of the total pay package. Since provident fund (PF), gratuity, and other statutory contributions are calculated on 'wages', this change will increase the contribution amount for most employees, raising the cost to the company (CTC) and potentially reducing the employee's take-home salary.

What are the new rules for working hours, leave, and overtime?

The new codes bring several changes to how work hours, leave, and overtime are managed. The standard workday remains 8 hours, with a maximum of 48 hours per week. A 4-day work week (12 hours per day) is an option, but its implementation depends on state government notifications. Overtime pay is mandatory for any work done beyond the standard 8 hours a day or 48 hours a week, calculated at twice the ordinary rate of wages. For earned leave, an employee is now entitled to 1 day of leave for every 20 days worked, with a maximum of 30 days allowed to be carried forward to the next year. Crucially, employees can now demand to encash their earned leave balance at the end of each calendar year.

What is the new deadline for full and final settlement?

The full and final (F&F) settlement of wages must now be completed within two working days of an employee's last working day. This applies whether the employee has resigned, been retrenched, or been dismissed. Previously, the timeline was not as strictly defined and often extended to 30-45 days. This new 2-day deadline requires employers to have highly efficient exit processes for calculating pending salary, leave encashment, gratuity, and other dues. Failure to meet this deadline can result in penalties.

Are standing orders now mandatory for my business?

Standing orders, which are rules governing the conditions of employment, are now mandatory for all industrial establishments with 300 or more workers. This is a significant increase from the previous threshold of 100 workers (or 50 in some states). For establishments that fall under this category, if you do not have your own certified standing orders, the model standing orders prescribed by the central government will automatically apply. This change provides relief to smaller and mid-sized industrial establishments.

How do the codes affect contract, gig, and platform workers?

The codes introduce new responsibilities for employers engaging different types of workers. The Industrial Relations Code prohibits the engagement of contract labour in core activities of an establishment, with some exceptions. The principal employer has an enhanced duty to ensure facilities and welfare for contract labour. Most notably, the Code on Social Security introduces a new legal framework for 'gig workers' and 'platform workers'. Companies engaging such workers will be required to contribute to a dedicated social security fund to provide them with benefits like disability cover and health insurance.

Key Changes: Old Labour Laws vs. New Labour Codes

Feature	Old Labour Laws (Pre-Codes)	New Labour Codes (2026)
Definition of 'Wages'	Varied across different Acts, leading to complex calculations.	Uniform definition. Exclusions (allowances) capped at 50% of total remuneration.
Applicability of Laws	29+ separate central Acts.	4 consolidated Codes.
Full & Final Settlement	No strict timeline; often 30-45 days in practice.	Mandatory within 2 working days of last day of employment.
Standing Orders Threshold	Applicable to establishments with 100+ workers (varied by state).	Applicable to industrial establishments with 300+ workers.
Gig & Platform Workers	Not legally defined or covered for social security.	Defined as a new class of workers; eligible for social security benefits.
Registrations & Filings	Multiple registrations and returns under various Acts.	Provision for single registration, one license, and one return for all codes.
Inspector Role	Primarily an enforcement role ('Inspector').	Role redefined as 'Inspector-cum-Facilitator' to advise and guide.

Worked example

Let's analyse the impact of the new wage definition on an employee's salary at a Bengaluru-based tech startup. Anisha is a software developer with a Cost-to-Company (CTC) of ₹20,00,000 per annum.

Old Salary Structure:

• Basic Pay: ₹7,00,000 (35% of CTC)
• HRA: ₹3,50,000 (17.5% of CTC)
• Special Allowance: ₹8,02,000 (40% of CTC)
• Employer's PF Contribution (12% of Basic): ₹84,000
• Total CTC: ₹19,36,000 + ₹84,000 (PF) = ₹20,20,000 (approx.)

Under this structure, allowances (HRA + Special Allowance) are ₹11,52,000, which is 65% of her gross salary (excluding PF). This is non-compliant with the new codes.

New Compliant Salary Structure: To comply, Anisha's 'wages' (for PF calculation) must be at least 50% of her total remuneration. Total remuneration here is ₹20,00,000.

• Minimum 'Wages' required: 50% of ₹20,00,000 = ₹10,00,000
• The company must now restructure her pay:
  • Basic Pay (New): ₹10,00,000
  • Allowances (HRA, Performance Bonus etc.): ₹8,80,000
  • New Employer's PF Contribution (12% of New Basic): 12% of ₹10,00,000 = ₹1,20,000
• Total CTC: ₹18,80,000 (Basic + Allowances) + ₹1,20,000 (PF) = ₹20,00,000

Impact Analysis:

• Employer's Cost: The employer's annual PF contribution for Anisha increases from ₹84,000 to ₹1,20,000, a direct increase of ₹36,000.
• Employee's Take-Home: Anisha's own PF contribution also increases, reducing her monthly take-home salary. However, her retirement savings in PF and gratuity payout (which is linked to basic pay) will be substantially higher.

Common mistakes

1. Ignoring the Wage Definition: Continuing with old salary structures where allowances exceed 50% is the biggest compliance risk. This will lead to incorrect PF, ESI, and gratuity calculations and attract penalties.
2. Failing to Update Contracts: Not updating employment agreement essentials and HR policies to reflect the new rules on leave, F&F settlement, and working hours.
3. Missing the F&F Deadline: Inefficient exit processes that delay F&F settlement beyond the mandatory two working days can lead to legal action and penalties.
4. Misclassifying Workers: Classifying full-time employees as 'consultants' or 'freelancers' to bypass social security obligations is now riskier, as the definitions of employee and worker are broader.
5. Neglecting Gig Workers: Ignoring the new requirement to contribute to social security funds for gig and platform workers.
6. Not Digitising Records: Failing to maintain prescribed employee registers and records in digital format, which is a key procedural requirement under the new regime.

How SP & SC helps

Navigating the complexities of the new Labour Codes requires expert guidance. SP & SC Legal and Taxation Services provides end-to-end labour compliance solutions. We conduct comprehensive audits of your existing HR practices, help you restructure salary components to be compliant with the new wage code, redraft employment contracts and company policies, and manage all necessary registrations and filings under the new framework. Our team ensures your business remains fully compliant, protecting you from financial penalties and legal disputes. For a detailed review and action plan, explore our Labour Compliance Services.

Frequently asked questions

H3: Is the 4-day work week now compulsory?

No, it is not compulsory. The OSH Code provides it as an option for employers, allowing for four 12-hour workdays while adhering to the 48-hour weekly limit. However, its implementation is subject to rules framed by the respective state governments.

H3: Do the new labour codes apply to startups and small businesses?

Yes, the codes apply to establishments based on the number of workers and the nature of the activity, not the age or size of the business. For instance, the Code on Wages applies to all establishments. The Code on Social Security has specific thresholds (e.g., 10 or more employees for ESI, 20 or more for EPF) for certain benefits.

H3: What happens if I miss the 2-day F&F deadline?

Failing to pay the final settlement within two working days is a violation of the Code on Wages. An employee can file a complaint with the authorities, and the employer can be subject to penalties as prescribed under the Code.

H3: What is an 'Inspector-cum-Facilitator'?

This is the new designation for labour inspectors. The change in title reflects a shift in their role from purely enforcement to also include advising and guiding employers and workers on how to comply with the law. They still retain the power to conduct inspections.

H3: Do I need to provide gratuity to fixed-term employees?

Yes. Under the Code on Social Security, gratuity is payable to fixed-term employees on a pro-rata basis, even if they have not completed five years of continuous service. This is a significant change from the previous law. Check our guide on gratuity calculation in India for more details.

Get a fixed-fee quote

The transition to the new Labour Codes is a significant compliance exercise. To ensure you have all your bases covered, from salary restructuring to policy redrafting, it's best to seek professional advice. Contact SP & SC to share your company's details and employee structure. We will provide a written fixed-fee quote for a comprehensive compliance audit and implementation plan. You can also reach us via WhatsApp at +91 90356 74566. We handle all legal and taxation challenges for businesses, end to end.