New Labour Codes: Immediate Action Points for Employers in India

India’s New Labour Codes are fundamentally reshaping wage definitions, payroll structuring, statutory payouts, and employer liabilities. While staggered notifications continue, several provisions already require immediate operational action, especially for businesses with structured payrolls and large workforces.

For IT/ITES companies, Global Capability Centers (GCCs), and manufacturing units, non-alignment can lead to unexpected cost escalation, compliance gaps, and employee disputes.

This guide breaks down what to act on now, and how the impact differs by sector.

Why the New Labour Codes Matter for Employers

The biggest shift under the new Labour Codes is the move towards:

• a single, universal definition of “wages”, and

• tighter timelines for salary payment, final settlement, and statutory benefits.

This directly impacts:

• EPF, ESI, Bonus, Gratuity, Leave, Overtime

• Contractor management

• Fixed-term and project-based employment

• Payroll cost forecasting

• EPF, ESI, Bonus, Gratuity, Leave, Overtime

• Contractor management

• Fixed-term and project-based employment

• Payroll cost forecasting

1. Wage Structure Realignment (50% Rule)

Under the new framework:

• Basic + DA + Retaining Allowance must be at least 50% of total remuneration

• All excluded allowances together cannot exceed 50%

Sector Impact

• IT/ITES & GCCs: High allowance-heavy CTC structures need restructuring

• Manufacturing: Supervisor and shop-floor wage splits require validation

2. One Unified Definition of Wages Across Labour Laws

The definition of “wages” now applies uniformly for:

• EPF

• ESI

• Bonus

• Gratuity

• Maternity benefits

• Earned Leave encashment

• Overtime

Why this matters

Legacy payroll systems often use different bases for different compliances—this is no longer valid.

3. Expanded ESI Coverage Risk

Employees with gross salary up to ₹42,000 may fall under ESI if:

• wage (basic component) is ₹21,000 or below

Sector Impact

• IT/ITES & GCCs: Junior tech staff, support roles, and trainees may newly fall under ESI

• Manufacturing: Shop-floor workers and contract staff coverage expands

4. Faster Final Settlement Timelines (2 Days Rule)

In case of:

• Resignation

• Termination

• Retrenchment

• Dismissal

All dues must be settled within 2 days.

Sector Impact

• GCCs & IT companies: Exit approvals and payroll sign-offs must be streamlined

• Manufacturing: Coordination with attendance, overtime, and leave data becomes critical

5. Salary Disbursement Deadline – 7th of Every Month

Wages must be paid on or before the 7th.

Additionally:

• Principal Employers must ensure contractors are paid in time

• Contractor delays can trigger PE liability

Sector Impact

• Manufacturing: High contractor dependency increases PE exposure

• IT/ITES: Vendor payroll integration becomes essential

6. Standing Orders Threshold Raised to 300 Workers

Standing Orders are now applicable only if:

• workforce strength is 300 or more (earlier 100)

Opportunity:

7. Gratuity for Fixed-Term & Project Employees

Gratuity is payable to:

• Fixed-term employees

• Project-based employees

after completion of the contract, even if the tenure is only one year.

Sector Impact

• GCCs & IT projects: Contractual staffing costs increase

• Manufacturing: Project and seasonal employment provisioning becomes mandatory

8. Mandatory Appointment Letters & Salary Slips

Issuance of:

• Appointment letters

• Salary slips

is now compulsory. Standard formats will be notified.

9. Working Hours, Spread Over & Overtime

• Normal working hours: 8 hours/day

• Spread over: up to 10.5 hours

• Overtime payable at double the wage rate

Maximum overtime:

• 144 hours per quarter

• Only with employee consent

Sector Impact

• Manufacturing: Shift planning and overtime budgeting critical

• IT/ITES: Overtime compliance for support and BPO operations

10. Fixed-Term Employment = Permanent Employment (Parity Rule)

Fixed-term employees must receive:

• Same wages

• Same service conditions

as permanent employees (except tenure-linked benefits).

11. Contractor Licensing Threshold Raised

Contractors employing less than 50 workers do not need a license.

However:

• Principal Employer responsibilities remain unchanged.

12. Earned Leave (EL) Accumulation & Encashment

• EL accumulation allowed up to 30 days

• Leave beyond 30 days does not lapse

• Excess leave must be encashed at wage rates

Sector Impact

• Manufacturing: Long-tenured workforce = higher leave liability

• IT/GCCs: Financial provisioning becomes essential

What Employers Should Do Now

Final Takeaway

The New Labour Codes are not a future compliance issue—they are a current payroll and cost-structure issue.

For IT/ITES companies, GCCs, and manufacturing units, early alignment means:

• predictable statutory costs

• reduced litigation risk

• smoother audits

• stronger employee trust

Waiting for “full notification” often proves costlier than proactive restructuring.