New Labour Laws India 2025: Comprehensive FAQ for Employers & Employees

You didn’t come here for a summary of the new labour laws India. You’re here to gain clarity on what applies to you and the implications of these changes in practice. The Central Government has brought the consolidated 4 new Labour Codes into effect from 21 November 2025. Soon after, a slew of practical questions started emerging: Do we need to change our salary structure? Will take-home pay be impacted? Are these rules already in force? What happens to PF, gratuity, and compliance obligations now?

One of the first questions being asked is about the four labour codes themselves. To ensure we are aligned on the framework before addressing their practical impact, here is a simplified view of the four labour codes.

Q. What are the 4 New Labour Laws in India?

1. Code on Wages: Uniform definition of wages, minimum wage provisions, and timely payment rules.
2. Industrial Relations Code: Dispute-resolution, standing orders, recognition of trade unions, and layoffs/closures framework.
3. Code on Social Security: Social security architecture; includes provisions for gig & platform workers, a National Social Security Board, and social security fund mechanisms.
4. Occupational Safety, Health & Working Conditions (OSH) Code: Safety & health norms, single-registration for establishments, inspections, etc.

Q. Have the four new labour codes been implemented?

Answer: Yes. The Central Government notified the Codes to come into force on 21 November 2025. However, many provisions require State Rules to be notified; enforcement practices and some administrative details will therefore vary by State.

What this means for employees: Your employer may start aligning salary structures and policies, but some benefits or deductions may change only after State rules are notified.

Q. What major definitional change should employees & employers note first?

Answer: Under the updated Labour laws (Nov 2025), Wages include basic pay, dearness allowance, and retaining allowance (if applicable). Importantly, the Codes require that at least 50% of total remuneration (or the notified percentage) must be treated as wages for statutory calculations; if allowances reduce the basic / DA share below that level, the excess allowances will be added back into wages for statutory purposes. This provision, referred to as the “50% rule,” is a key driving immediate changes in payroll structures.

What this means for employers and employees: PF, gratuity, and other wage-linked benefits are calculated on a higher base. Employers should expect higher statutory costs, and employees may see some reduction in take-home pay but larger retirement/social security accruals.

Q. What is excluded from “wages”?

Answer: Typical exclusions remain (HRA, conveyance, employer PF contribution, reimbursements, bonus), but if the excluded allowances push Basic+DA below the required percentage (50% of total remuneration), the excess is reclassified into wages. Exact lists, limits and computation methodology are specified in the Codes and will be further clarified by rules/notifications.

Q. Who will be impacted by the new labour laws India 2025?

Answer: Salaried employees (permanent, fixed-term), contract workers, gig/platform workers, migrant or interstate workers, and unorganised sector workers are all impacted. The Codes broaden coverage and create pathways to formalisation. Specific entitlements can differ pending State Rules.

Q. Do gig workers get social security under the new labour codes?

Answer: Yes, for the first time in Indian labour law. The Code on Social Security recognises gig and platform workers and provides for scheme-based social security (life & disability cover, health, maternity benefits, old-age protection). The Code enables a National Social Security Board and a Social Security Fund to fund such schemes; operational details and scheme rules will follow via notifications.

Example (App-based delivery gig worker): The Code allows a scheme-driven social security benefit. Implementation requires a notified scheme and funding mechanisms (Social Security Fund / National Board), benefits are possible, but rollout details and registration processes will follow.

Q. How does PF / EPFO change?

Answer: Since PF is calculated on wages, widening the wage base increases both employee and employer PF contributions. EPFO has introduced enrolment windows and schemes to widen coverage; the organisation has issued circulars and press material explaining enrolment drives and schemes to regularise previously missed employees. Employers should model PF impact immediately.

Q. What must employers do immediately?

Answer: Employers should review and act on the following immediate compliance checklist (This is not a complete list of all statutory requirements and should be read as indicative):

1. Run a payroll impact audit (current Basic+DA vs. total remuneration).
2. Rebalance salary structures to comply with the 50% rule.
3. Update payroll systems to reflect higher PF/gratuity bases.
4. Prepare employee communications and FAQ for transparency.
5. Track state-level notifications (State labour department sites) for local variations.

Q. What are the pros and cons of the new labour laws?

Answer: The four Labour Codes aim to modernise India’s labour framework by simplifying compliance, expanding worker coverage, and reducing legal ambiguity. However, the transition has both advantages and challenges for employers and employees.

Pros:

• Simplification of laws: 29 central labour laws consolidated into 4 Codes, reducing overlap and interpretation conflicts.
• Uniform definition of wages: Brings clarity for calculating PF, gratuity, overtime, and bonuses.
• Expanded social security: Gig workers, platform workers, and unorganised workers are formally recognised for social security coverage.
• Reduced criminalisation: Many offences are now compoundable, reducing imprisonment risk for procedural lapses.
• Digital-first compliance: Emphasis on online registration, returns, and inspections.

Cons:

• Higher short-term cost for employers: Due to the increased wage base (50% rule), impacting PF and gratuity.
• Reduced take-home pay (initially): Employees may see higher deductions, though long-term benefits improve.
• State-wise uncertainty: Different States may notify different rules, creating compliance complexity.
• Transition challenges: Payroll restructuring, contract revisions, and employee communication require time and cost.

Q.  How do the labour codes affect gratuity?

Answer: The  new Labour laws in India significantly increase gratuity liability for employers and expand eligibility for employees.

Key changes:

• Higher gratuity calculation base: Gratuity is calculated on “wages”, and since wages must be at least 50% of total remuneration, gratuity payouts increase.
• Fixed-term employees covered: Fixed-term employees are now eligible for gratuity even if they do not complete 5 years of service, provided the contract term ends naturally.
• Uniform definition: Removes disputes over what salary components qualify for gratuity.

Example (Mid-sized IT company): CTC ₹12 LPA; Basic previously 30% → employer must increase Basic to at least 50% (or recast CTC), which raises PF base and employer costs. Employees see higher PF deductions; retirement corpus grows.

Q. Will employers need to revise employment contracts?

Answer: Yes. Employers are strongly advised to revise employment contracts to align with the Labour Codes and upcoming State Rules.

Why is contract revision necessary?

• Salary structures must reflect the new definition of wages
• Fixed-term employment provisions are now legally recognised
• Over time, working hours and leave provisions are standardised
• Termination, notice, and retrenchment clauses must align with the Industrial Relations Code

What should be updated:

• Compensation and wage break-up
• Fixed-term employment clauses
• Overtime eligibility
• Gratuity and social security references
• Disciplinary and separation clauses

Failure to align contracts may expose employers to compliance disputes and penalties once State Rules are enforced.

Q. What are the penalties for non-compliance under the new labour codes?

Answer: The  new Labour Laws in India prescribe a graduated penalty framework where most violations attract monetary penalties, with stricter consequences for serious or repeated non-compliance. Lapses related to wages, social security contributions, contract labour, fixed-term employment, or workplace safety can trigger higher fines, enhanced scrutiny, and, in limited cases, prosecution, while procedural offences may be compoundable for first-time defaults. Employers operating with contract workers, outsourced payroll, or multi-state operations may also face principal employer liability. Regulators are expected to rely increasingly on digital audits and inspections, making it essential for employers to remain audit-ready at all times.

Labour Code enforcement will not wait for perfect clarity. States will notify rules with little transition time, and principal employers, especially those using contract staff, fixed-term hiring, and outsourced payroll will be the first to be audited.

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Caveats:

• This blog is for general informational purposes only and is based on the latest available updates on India’s labour codes; interpretations and implementation may vary by state, industry, workforce size, and employment model, and are subject to change or judicial interpretation.
• The content should not be treated as legal advice. Always refer to the latest official government notifications and consult a qualified legal or labour law professional for compliance-related decisions.
• Full implementation and enforcement, including registration, inspections, and penalties, are subject to individual State notifications and rules, which may vary and be updated over time.
• While the central Code provides a framework for gig and platform workers, detailed scheme design and operational aspects depend on further notifications and guidelines.

Sources:

• Gazette notifications/Ministry of Labour (21 Nov 2025)
• PIB press releases explaining the Codes & highlights
• EPFO official pages (enrolment / circulars)
• Reputable coverage (The Times of India explaining practical payroll impacts