The "Strategic & Comprehensive" Approach to New Labour Codes

📋 The Compliance Checklist:

India's New Labour Codes

The wait is over. As of November 21, 2025, India has officially transitioned from a complex web of 29 central labour laws to 4 unified Labour Codes. For employers, this is not just a regulatory update—it is a fundamental operational shift.

For the boardroom, this is not merely an administrative update; it is a statutory restructuring that demands immediate review of your P&L, payroll liabilities, and operational policies. At Growprise LLP, we have conducted a technical analysis of these provisions. Below is our assessment of the fiscal and compliance impact on your entity.

1. The Code on Wages, 2019

Consolidated Statutes: Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, Equal Remuneration Act.

The Code introduces a unified definition of "Wages," which serves as the base for all statutory computations. The implications for payroll structuring are substantial.

Critical Financial & Compliance Impacts:

• Statutory Wage Definition (The "50% Proviso"): The Code mandates that specific exclusions (HRA, Overtime, Conveyance, etc.) cannot exceed 50% of the total remuneration. Any excess over this threshold must be deemed as "Wages".

  • Advisory: This will directly impact the Provident Fund (PF) and Gratuity liability. Management must anticipate a rise in employer contributions and provision for gratuity.

• Liquidity Management for Settlements: The window for Full & Final (F&F) settlement upon resignation, dismissal, or retrenchment has been statutorily compressed to two working days.

  • Advisory: Working capital protocols must be adjusted to ensure immediate liquidity for exits. The traditional 30-60 day credit period on employee dues is no longer legally tenable.

• Limitation Period Extension: The period for employees to file claims regarding wage disputes has been extended to three years.

  • Advisory: Record retention policies must be strengthened to mitigate future litigation risks.

2. The Code on Social Security, 2020

Consolidated Statutes: EPF Act, ESI Act, Maternity Benefit Act, Gratuity Act, et al.

This Code universalizes social security, extending liabilities to categories previously outside the net, specifically gig workers and fixed-term employees.

Critical Financial & Compliance Impacts:

• Levy on Aggregators: Entities operating as aggregators must now provision for a contribution of 1% to 2% of annual turnover (capped at 5% of distinct payments to workers) towards the Social Security Fund.

• Gratuity for Fixed-Term Employees (FTE): The statutory requirement of five years of continuous service has been waived for FTEs. They are now entitled to pro-rata Gratuity after just one year of service.

  • Advisory: Companies utilizing contract staffing models must revise their actuarial valuations to account for this accrued liability.

• Enhanced Penal Provisions: Non-compliance in depositing contributions now attracts fines up to ₹1,00,000 and potential imprisonment.

  • Advisory: Internal controls regarding statutory dues must be rigorous; the cost of non-compliance has escalated significantly.

3. The Industrial Relations (IR) Code, 2020

Consolidated Statutes: Industrial Disputes Act, Trade Unions Act, Standing Orders Act.

The IR Code attempts to balance ease of doing business with worker protection, particularly regarding retrenchment norms and union recognition.

Critical Financial & Compliance Impacts:

• Revised Thresholds for Retrenchment: Industrial establishments with less than 300 workers (previously 100) are now exempt from seeking prior government approval for lay-offs, retrenchment, or closure.

• Reskilling Fund Contribution: In the event of retrenchment, the employer is statutorily obligated to contribute 15 days of the worker's last drawn wages to a "Reskilling Fund".

  • Advisory: This is an additional severance cost that must be factored into any restructuring budgets.

• Sole Negotiating Union: Recognition is now mandated for unions holding 51% or more support on the muster roll.

4. The OSH Code (Occupational Safety, Health & Working Conditions), 2020

Consolidated Statutes: Factories Act, Contract Labour Act, et al.

This Code rationalizes the licensing regime and recognizes modern working arrangements.

Critical Financial & Compliance Impacts:

• Definition of Factory: The threshold for applicability has been raised to 20 workers (with aid of power) and 40 workers (without aid of power).

• Contract Labour Regulation: The licensing requirement now applies only to contractors employing 50 or more workers.

• Statutory Leave Encashment: The eligibility criteria for paid leave has been reduced from 240 days to 180 days of work.

  • Advisory: This will accelerate the accrual of leave liability in the books of accounts.

Here is a simple summary of the Fixed Term Employment (FTE) rules:

a. What is Fixed Term Employment (FTE)? You can now officially hire employees for a specific period (e.g., 1 year or 6 months) using a direct contract. They are not "permanent," but they are also not "contract labor" hired through a third-party agency.

b. Equal Pay for Equal Work Even though they are temporary, FTEs must be paid the exact same salary, allowances, and benefits as a permanent employee doing the same job. You cannot pay them less just because they are on a fixed contract.

c. The Gratuity Advantage

• Permanent Employees: Must work for 5 years to be eligible for Gratuity.

• Fixed Term Employees: Do not have to wait 5 years. They are eligible for Gratuity based on their actual service tenure (e.g., if they work for 1 year, they get paid Gratuity for that 1 year).

💡 The Growprise "Must-Do" Checklist

1. Payroll Structuring: Ensure your "Basic Pay" is at least 50% of CTC to avoid differential liability.

2. Update Employment Contracts: Add clauses for FTE gratuity and ensure appointment letters are issued to everyone.

3. Audit Cash Flow: Prepare for the 2-day F&F settlement cycle.

4. Policy Update: Revise your Sexual Harassment policy to reflect the new bonus disqualification clause.

   
   

Need a full Compliance Audit? The transition period is critical. Contact Growprise LLP today to ensure your business is compliant and penalty-proof.