Labour Codes 2025: A Practical Guide for HR Leaders

On 21 November 2025, India’s four Labour Codes came into effect, replacing 29 older legislations. This marks the most significant transformation of employment law in decades. The Codes are grouped into four pillars: Wages, Industrial Relations, Social Security, and Occupational Safety and Working Conditions.

For HR leaders, the Codes demand a recalibration of payroll structures, contracts, benefits, and compliance systems. This Guide provides context, detailed analysis, and actionable steps to help organisations transition smoothly.

Quick Summary for HR Leaders

• Four Codes (Wages, Industrial Relations, Social Security, OSHWC) replace 29 older laws.
• Wages: Allowances capped at 50% of CTC; PF and gratuity bases rise.
• Industrial Relations: Retrenchment threshold raised to 300 workers; fixed‑term employment formalised.
• Social Security: Coverage expands to gig/platform workers, gratuity eligibility shortened, commuting accidents now covered.
• OSHWC: Mandatory appointment letters, 48‑hour weekly cap, flexible shifts (including WFH), gender-neutral crèche facilities, and free health checks for employees aged 40+, and women allowed night shifts with safeguards.
• HR Imperative: Audit payroll, standardise contracts, digitise compliance, communicate changes clearly.
• greytHR: Already automates wage definitions, PF/ESI, appointment letters, and compliance registers; gearing up for new rules.

Why the Labour Codes Were Introduced

India’s earlier labour framework was fragmented, with overlapping definitions and multiple compliance authorities. The new Codes simplify this through the Ministry of Labour’s “3S” framework: Simplification, Security, and Sustainable Growth.

They consolidate 29 laws into four Codes, introduce a unified wage definition, and digitise compliance through single registration, single annual return, and risk‑based inspections.

Equally important, the inspection system shifts from a punitive model to an “Inspector‑cum‑Facilitator” approach, emphasising guidance and support before penalties. This change signals a move towards collaborative compliance, where HR leaders are expected to embed discipline into systems rather than rely on ad‑hoc fixes.

Comparison: Pre‑Code vs Post‑Code Ecosystem

Code on Wages: Redefining Salary Structures

The Wage Code introduces a single definition of “wages” that applies across PF, gratuity, and bonus.

Universal Minimum Wage: Unlike the old system of "Scheduled Employments," minimum wages now apply to all employees across all sectors. The Central Government will set a National Floor Wage, and States cannot set minimum wages below this threshold.

The "50% Rule": Allowances cannot exceed 50 percent of total remuneration. If they do, the excess is added back into "Wages" (defined as Basic Pay + Dearness Allowance + Retaining Allowance) for statutory calculations.

For HR, this requires revisiting CTC templates, increasing the basic pay component, and recalibrating payroll systems. Employees may see reduced take‑home pay due to higher PF deductions, but long‑term savings and gratuity entitlements increase.

Example: Impact on a ₹6 Lakh CTC Package

To understand the 50% rule, let’s look at a typical salary structure before and after compliance. Scenario: An employee has a CTC of ₹50,000 per month.

Employees may see reduced take‑home pay due to higher PF deductions, but long‑term savings and gratuity entitlements increase. HR must communicate this trade-off clearly.

HR priorities:

• Audit salary structures to ensure compliance with the 50 percent rule
• Communicate changes transparently to employees
• Align payroll engines to the new wage definition

Industrial Relations Code: Flexibility with Responsibility

The IR Code raises the threshold for government approval of retrenchment, lay‑offs, and closures from 100 to 300 workers. This provides mid‑sized organisations with greater flexibility, but notice periods and compensation formulas remain mandatory.

Key Financial & Legal Updates:

• Reskilling Fund: Employers must now contribute 15 days' wages per retrenched worker to a worker reskilling fund.
• Faster Disputes: Parties can now approach Industrial Tribunals directly if conciliation fails, bypassing government referral delays

Fixed‑term employment is formally recognised. FTEs are entitled to parity with permanent employees and gratuity after one year of service. HR must design contracts carefully and manage exits without litigation.

HR priorities:

• Standardise appointment and exit letters.
• Establish Grievance Redressal Committees with mandatory women representation.
• Ensure fixed‑term contracts reflect statutory parity.

Social Security Code: Expanding Coverage

The Social Security Code consolidates nine laws and extends coverage to gig and platform workers. Aggregators must contribute 1–2 percent of turnover to a social security fund, capped at 5 percent of payouts to workers.

PF and ESI bases now follow the Wage Code definition, increasing liabilities. Gratuity eligibility is shortened from five years to just one year for fixed‑term employees.

Additionally, injuries occurring during the commute between home and workplace are now deemed employment-related for compensation.

New for HR operations: The definition of “family” for female employees has been expanded to include dependent parents‑in‑law. This requires updates to medical insurance policies and statutory nomination forms (such as Gratuity Form F).

HR priorities:

• Classify worker categories correctly (gig vs. permanent) in HR systems
• Update nomination forms to include parents‑in‑law for female staff
• Configure PF, ESI, and gratuity rules for fixed‑term and gig workers
• Maintain clean master data for inspections and reconciliations

OSHWC Code: Modernising Work Conditions

The OSHWC Code retains the 48‑hour weekly cap but allows daily shifts up to 12 hours, enabling compressed schedules such as a four‑day week. Overtime must be paid at twice the ordinary wage rate.

New Mandates:

• Mandatory Appointment Letters: Employers must issue formal appointment letters to every employee (including contract, migrant, and gig workers), ensuring formalisation and transparency
• Gender-Neutral Crèches: Establishments with 50+ workers must provide crèche facilities, which are now gender-neutral and accessible to all employees, not just women.
• Free Health Checks: Employers must provide free annual health check-ups for all employees aged 40 and above. (Note: This typically covers all workers in hazardous sectors, but applies to the 40+ age group in general establishments).
• Work From Home (WFH): The Code formally recognises WFH options in service sectors, subject to mutual consent.

Women can now work night shifts with consent, provided employers ensure safety, transport, and facilities. Leave eligibility is also relaxed from 240 to 180 days, benefiting seasonal and contract workers.

HR priorities:

• Issue formal appointment letters to all employees.
• Ensure crèche facilities are gender-neutral (if 50+ employees)
• Budget for mandatory health check-ups (employees aged 40+).
• Document safeguards and consents for women on night shifts
• Configure attendance and overtime rules in HRMS

FAQs

Q1. How should HR redesign salary structures under the Wage Code?

HR must ensure basic pay is at least 50 percent of CTC. Payroll templates should be re‑engineered, and PF/gratuity bases recalculated.

Q2. What policies must HR update for fixed‑term employment?

Contracts must reflect parity with permanent employees. Gratuity eligibility begins after one year. HR should standardise templates and exit processes.

Q3. How do the Codes affect HR’s handling of gig and platform workers?

HR must classify gig workers separately, track aggregator contributions, and ensure eligibility for social security schemes.

Q4. What compliance documents are mandatory for HR under the new regime?

Appointment letters, wage registers, PF/ESI records, overtime logs, safety documentation, and a single annual return must be digitised and inspection‑ready.

Q5. How should HR manage women’s night shifts?

HR must obtain written consent, provide safe transport, security, and POSH‑compliant facilities. Policies and records must be documented.

Q6. What is HR’s role in implementing the National Floor Wage?

HR must benchmark salary bands against both state minimum wages and the central floor wage, ensuring no worker is paid below the threshold.

Q7. How does overtime calculation change for HR payroll teams?

Overtime must be calculated on the revised wage base, increasing hourly rates. HR must configure payroll systems to apply double‑rate OT consistently.

Q8. What should HR do about contract labour licensing?

Licensing now applies at 50 or more workers. HR must track contractor workforce sizes, ensure vendor compliance, and maintain records.

Q9. How do the Codes affect HR audits and inspections?

Inspections are now web‑based and risk‑driven. HR must maintain clean digital records and be prepared for algorithmic inspection triggers.

Q10. How should HR communicate Labour Code changes to employees?

Prepare explanatory notes, FAQs, and townhalls to clarify impacts on take‑home pay, PF, gratuity, and working hours. Transparent communication builds trust.

The HR Imperative

The Labour Codes demand structure, transparency, and traceability. For HR leaders, the immediate priority is to embed compliance into systems rather than rely on manual checklists. Salary templates, appointment letters, PF/ESI mapping, overtime policies, and safety documentation must all be standardised and digitised.

Transition Strategy: While the Codes are effective, many State rules are still being finalised. The government advice is to follow existing rules during this transition period while preparing digital systems for the new regime.

How greytHR Supports Compliance

While state rules are still being notified and product features will evolve, greytHR already enables HR teams to automate salary structures, PF/ESI, appointment letters, and statutory registers. The platform helps configure wage definitions, manage fixed‑term contracts, track attendance and overtime, and maintain digital records for inspections.

As new rules are finalised, greytHR is preparing to incorporate them, ensuring HR leaders can stay compliant without manual firefighting. Used alongside sound legal advice, greytHR provides the system discipline that the Labour Codes demand.

Summing Up

The Labour Codes are a watershed moment for India’s employment framework. They simplify compliance, expand social security, and modernise workplace norms. For HR, they represent both a challenge and an opportunity: a challenge to recalibrate processes quickly, and an opportunity to lead organisational compliance with clarity and confidence.

Want to know how greytHR can help streamline HR and support compliance?

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Disclaimer: This resource is informational in nature. For case-specific interpretation or legal matters, please consult qualified legal counsel.