India Labour Laws 2026: Employer Compliance Guide
India’s four labour codes took effect 21 November 2025. See what changed for employers on wages, PF, gratuity and contracts. Free 15 minute review.
- July 24, 2026
- India replaced 29 central labour laws with four labour codes. All four took effect on 21 November 2025.
- The Ministry of Labour and Employment notified the final Central Rules on 8 May 2026, so the codes are now operational for establishments where the central government is the appropriate government.
- Most states have still not notified their own rules, so employers run a split regime: codes plus old state rules, state by state.
- The costliest change is the wage definition. Excluded allowances cannot exceed 50 percent of total remuneration, and the excess is added back to wages for provident fund, gratuity and bonus.
- Every employee must now hold a written appointment letter in the prescribed format.
- A foreign company can employ in India without setting up an entity by using an Employer of Record, which holds the registrations, runs payroll and carries statutory filings.
India’s labour laws changed more in one day than in the previous fifty years. On 21 November 2025 the government brought all four labour codes into force at once, folding 29 central statutes into the Code on Wages 2019, the Industrial Relations Code 2020, the Code on Social Security 2020 and the Occupational Safety, Health and Working Conditions Code 2020. The final Central Rules followed on 8 May 2026. For a foreign company employing people in India, three things now matter more than the rest: your salary structure probably breaches the new 50 percent wage rule, every employee needs a written appointment letter, and the state layer has not caught up, so compliance still varies by where your people sit. This guide sets out what applies, what it costs, what the penalties are, and which parts you can hand to an Employer of Record instead of building an India entity to hold them.
Are India's new labour codes in force?
Yes. All four codes have been in force since 21 November 2025, when the Ministry of Labour and Employment issued the commencement notification and the Prime Minister announced the reform publicly. See the ministry’s own labour codes portal and the Press Information Bureau release for the primary text.
The confusion people run into is the gap between a code being in force and a code being fully operational. A code sets the obligation. The rules set the forms, the thresholds, the timelines and the formats you actually file. India ran those two steps months apart, and the state governments are running a third step that is still incomplete.
Implementation timeline
| Date | What happened | What it means for an employer |
|---|---|---|
| 2019 to 2020 | Parliament passes all four codes | No obligation yet. The codes sat unnotified for five years. |
| 21 Nov 2025 | All four codes brought into force, replacing 29 central laws | The codes become the operative law. Old acts survive only through savings provisions where the codes are silent. |
| 30 Dec 2025 | Draft Central Rules published for comment | Signals the shape of the forms and thresholds. Not yet binding. |
| 8 May 2026 | Final Central Rules notified under all four codes, plus Model Standing Orders for manufacturing and services and the designation of enforcement authorities. | Operational for establishments under central jurisdiction. Appointment letter formats, wage slip rules and overtime computation all become concrete. |
| 2026, ongoing | State rules being notified unevenly. More than 30 states and union territories have notified rules under at least one code. | No single all-India commencement date. Compliance is location specific until states finish. |
What the four labour codes replaced
Four codes, 29 central acts. The mapping matters because your existing policy documents, registers and contracts all cite the old act names, and an inspector now works from the code.
| Code | Key acts subsumed | What an employer feels first |
|---|---|---|
| Code on Wages, 2019 | Minimum Wages Act 1948, Payment of Wages Act 1936, Payment of Bonus Act 1965, Equal Remuneration Act 1976 | One definition of wages across every statutory calculation. Minimum wage now covers all employment, including office and service roles that previously sat outside it. |
| Industrial Relations Code, 2020 | Trade Unions Act 1926, Industrial Employment (Standing Orders) Act 1946, Industrial Disputes Act 1947 | Standing orders, fixed-term employment, retrenchment procedure and a worker re-skilling fund. |
| Code on Social Security, 2020 | EPF Act 1952, ESI Act 1948, Payment of Gratuity Act 1972, Maternity Benefit Act 1961, Employees Compensation Act 1923, and others | Provident fund, ESI, gratuity and maternity in one place, plus a new social security framework for gig and platform workers. |
| Occupational Safety, Health and Working Conditions Code, 2020 | Factories Act 1948, Contract Labour Act 1970, Inter-State Migrant Workmen Act 1979, Mines Act 1952, and nine others | Appointment letters, working hours, overtime, contract labour licensing, and welfare facilities such as canteens and creches. |
One point of confusion worth clearing up: the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 was not folded into the codes. It stands on its own and your Internal Committee obligations are unchanged. Indian courts have been tightening POSH enforcement, so treat it as a separate compliance track rather than something the codes absorbed.
What changed for employers on 21 November 2025
Seven changes carry real cost or real risk. Work through them in this order.
1. The wage definition and the 50 percent rule
This is the expensive one. Indian salary structures have traditionally kept basic pay low and loaded the rest into allowances, which shrank the base for provident fund, gratuity and bonus. The Code on Wages ends that. Wages now mean basic pay, dearness allowance and retaining allowance. Everything else, house rent allowance, conveyance, special allowance and the rest, sits in an excluded list with a cap. If those excluded components cross 50 percent of total remuneration, the excess is added back and treated as wages.
Example
| Component | Old structure | After the 50 percent rule |
|---|---|---|
| Total monthly remuneration | Rs 1,00,000 | Rs 1,00,000 |
| Basic plus DA | Rs 30,000 | Rs 30,000 |
| Excluded allowances | Rs 70,000 | Rs 70,000 |
| Permitted exclusion (50 percent) | No cap applied | Rs 50,000 |
| Excess added back to wages | Nil | Rs 20,000 |
| Wage base for PF, gratuity and bonus | Rs 30,000 | Rs 50,000 |
The wage base rises by two thirds in that example, and provident fund and gratuity rise with it. Take home pay falls unless the employer absorbs the difference, which is why this change lands as a compensation redesign problem before it lands as a compliance problem. Gratuity itself stays outside the definition of wages, since it is a terminal benefit rather than recurring remuneration, but the higher wage base still lifts what gratuity is calculated on. If you are modelling total cost of employment in India, start with minimum wage against average salary by role, then layer the statutory contributions on the corrected wage base.
2. Appointment letters are now mandatory for every employee
Every employee must be issued a written appointment letter in the format prescribed under the OSH Rules, setting out designation, category, wage details and social security entitlements. Employees who never received one have to be issued a letter within three months of the code taking effect. This is the single easiest thing for an inspector to check and the single most common gap in foreign owned subsidiaries that hired through informal offer emails. The ministry’s OSH Code factsheet sets out the reasoning and the required contents.
3. Working hours, overtime and leave
| Item | Position under the codes |
|---|---|
| Standard hours | Eight hours per day and 48 hours per week, with a maximum of six working days. |
| Overtime rate | Twice the ordinary wage rate, and only with the worker's consent. |
| Overtime ceiling | Capped under the Central Rules at 144 hours in any quarter. |
| Overtime rounding | Fifteen to thirty minutes counts as thirty minutes. More than thirty minutes counts as a full hour. |
| Annual leave eligibility | Reduced to 180 working days in a calendar year, down from 240. |
| Weekly rest | At least one rest day per week. |
| Wage slips | Mandatory, in electronic or physical form, with standardised rules on deductions, fines, advances and recoveries. |
The 240 to 180 day change is quietly significant for anyone running fixed term or seasonal hiring in India, because a cohort that previously never qualified for paid leave now does.
4. Social security, including gig and platform workers
The Code on Social Security brings provident fund, ESI, gratuity, maternity benefit and employees compensation under one statute, and it recognises gig workers and platform workers as legal categories for the first time in Indian law. Aggregators must contribute between 1 and 2 percent of annual turnover to a social security fund for these workers, capped at 5 percent of what they pay those workers. If your India operation runs a marketplace, a delivery network or any platform that connects users to service providers, read that obligation carefully before you assume it applies only to the large consumer apps. Our gig economy statistics breakdown covers how fast that workforce is growing in India.
Fixed term employees are entitled to gratuity on a pro rata basis, without the five year qualifying period that applies to permanent staff. That closes a gap employers previously used, deliberately or otherwise, when hiring on rolling one year contracts.
5. Women, night shifts and workplace facilities
Women may now work in all establishments and in all shifts, including before 6 am and after 7 pm, subject to written consent and to safety measures the employer has to put in place. Gender neutral wages are required and discrimination against transgender employees is prohibited. Under the Central Rules, establishments with 50 or more employees may provide and maintain a creche for children under six within one kilometre of the workplace, and free annual health checks apply to employees over 40 in specified categories of establishment.
6. Industrial relations, retrenchment and the re-skilling fund
The threshold for prior government permission on lay off, retrenchment and closure sits at 300 workers, which gives larger employers more operational room than the old 100 worker line. In exchange, an employer who retrenches a worker must contribute the equivalent of 15 days of that worker’s last drawn wages to a worker re-skilling fund within 45 days. Industrial tribunals now sit with a judicial and an administrative member, and conciliation that fails within 90 days moves straight to the tribunal.
7. Contract labour and principal employer liability
The Central Rules tightened obligations on principal employers and contractors covering wage payment, minimum bonus, contractor settlements, experience certificates and a common licensing mechanism. The exposure that catches foreign parents by surprise: if your contractor fails to deposit provident fund or ESI for workers on your premises, the liability lands on you as principal employer. An indemnity clause in the contractor agreement does not move the statutory liability. Contract labour is also barred from core activities except in defined situations. For a view of how this interacts with outsourced payroll, see our guide to global payroll.
Which labour laws apply to a private limited company in India
Applicability in India runs on headcount thresholds rather than on company type. Use this as the first pass, then confirm against your state rules.
| Threshold | Headcount | What switches on |
|---|---|---|
| Any employee | 1 | Code on Wages in full, written appointment letter, wage slips, POSH policy, professional tax where the state levies it. |
| Shops and establishments registration | Usually 1 to 10, state dependent | State registration, working hour and leave rules, holiday list filing. |
| ESI | 10 or more (20 in some states) | Employees State Insurance registration and contributions for employees under the wage ceiling. |
| OSH Code registration | 10 or more | Unified establishment registration, welfare facilities and safety obligations. |
| Provident fund | 20 or more | EPFO registration, employer and employee contributions on the corrected wage base. |
| Creche | 50 or more | Creche facility within one kilometre under the Central Rules. |
| Standing orders | 300 or more | Certified standing orders, or adoption of the Model Standing Orders notified on 8 May 2026. |
| Safety committee and safety officer | 250 and 500 | Safety committee at 250 or more, safety officer at 500 or more. |
| Retrenchment permission | 300 or more | Prior government permission for lay off, retrenchment or closure. |
Thresholds and the definition of who counts as a worker vary by state and by sector. Treat this table as the shortlist you take into a compliance review, not as the review itself. If you are running payroll across several states, HR software built for Indian statutory compliance handles most of the filing calendar automatically.
The state layer, and why it still decides your compliance
Labour sits on the concurrent list of the Indian Constitution, so the centre and the states both legislate. The codes did not change that. What the codes changed is the base layer, and every state now has to notify its own rules on top. More than 30 states and union territories have notified rules under at least one code, and no pan India commencement date has been announced for the state dependent provisions.
Until your state finishes, four things keep varying by location regardless of what the codes say:
- Shops and establishments registration, renewal and display obligations
- Professional tax rates and filing frequency, which some states do not levy at all
- Labour welfare fund contributions and deduction cycles
- Leave entitlement and working hour detail under state shops and establishments rules
Penalties for labour law non compliance in India
The codes raised penalties sharply while making enforcement more forgiving at the front end, through inspector cum facilitators who advise before they prosecute and through compounding for first offences. Figures below are the headline maxima. Confirm the applicable figure against the code section and your state rules before you rely on it, and read the ministry FAQ on the labour codes for the current official position.
| Breach | Exposure | Notes |
|---|---|---|
| Underpayment of wages, first offence | Fine up to Rs 50,000 | Under the Code on Wages |
| Repeat wage offence within five years | Imprisonment up to three months, fine up to Rs 1,00,000, or both | The five-year window resets exposure, so a single historical breach matters |
| Failure to maintain records | Fine up to Rs 10,000 | Rises where records failure sits alongside a wage breach |
| Obstructing an inspector cum facilitator | Fine up to Rs 1,00,000 | Treated as an attack on enforcement, not an administrative slip |
| General safety violation, OSH Code | Fine up to Rs 2,00,000 | Rises to Rs 4,00,000 for repeat offences |
| Serious injury or death | Imprisonment up to one year, plus fine | Separate criminal liability may also apply |
| Non-payment of social security contributions | Imprisonment up to three years and fine up to Rs 3,00,000 for repeat offences | In a business transfer, transferor and transferee are jointly liable for unpaid dues |
| Illegal strike or lockout | Fine up to Rs 50,000 | Under the Industrial Relations Code |
| Compounding, first offence | Fine-only offences settle at 50 percent of the maximum. Offences carrying up to one year imprisonment settle at 75 percent | Failure to comply with a compounding order adds 20 percent of the maximum fine |
The claim window also moved. Employees now have three years to bring a wage claim, up from six months under the Minimum Wages Act. Records you would previously have discarded are now evidence.
A 90 day compliance plan for a foreign employer
- Weeks 1 to 2. Run a wage structure test on every employee. Calculate excluded allowances as a percentage of total remuneration and flag anyone above 50 percent.
- Weeks 3 to 4. Model the corrected provident fund, gratuity and bonus cost. Decide who absorbs it, the company or the employee, and communicate that decision before payroll changes.
- Weeks 4 to 6. Issue appointment letters in the prescribed format to every employee who does not hold one. Update your standard offer template at the same time.
- Weeks 6 to 8. Rewrite the employee handbook against the codes: hours, overtime consent, leave at 180 days, night shift consent for women, grievance procedure.
- Weeks 8 to 10. Audit contractors. Verify provident fund and ESI deposits for every contract worker on your premises, and collect proof monthly from here on.
- Weeks 10 to 12. Build the state register described above, confirm your registrations under the OSH Code, and set a quarterly review date.
Entity or Employer of Record, and who carries which obligation
Most foreign companies reach this page while deciding whether to incorporate in India or hire through a partner. The compliance load above is the honest input to that decision. An Employer of Record becomes the legal employer of your India staff, so the registrations, the filings and the statutory liability sit with the EOR. You keep day to day direction of the work. A PEO arrangement shares those obligations instead of transferring them, which is a different risk profile. If you are unclear which model fits, our comparison of EOR against PEO for India sets out where each one breaks down.
| Obligation | Own India entity | Employer of Record |
|---|---|---|
| Company incorporation and annual filings | You | Not required |
| EPFO and ESIC registration | You | EOR |
| Professional tax and labour welfare fund | You | EOR |
| Appointment letters in prescribed format | You | EOR |
| Payroll processing and TDS | You | EOR |
| Statutory penalties for filing failures | You | EOR |
| Termination and notice compliance | You | EOR, on your instruction |
| Day-to-day direction of work | You | You |
| Intellectual property assignment | You | You, through the EOR contract |
| Time to first hire | Typically 8 to 12 weeks | Typically 1 to 2 weeks |
If the EOR route fits, start with our ranked list of the best EOR providers in India, or the wider list of international PEO providers operating in India. For how EOR payroll actually runs month to month, see our breakdown of EOR payroll, and for the commercial case, the benefits of partnering with an EOR.
Is your India salary structure compliant?
Not sure whether your India salary structure breaches the 50 percent wage rule? Peorient offers a free 15-minute review to show which obligations you can transfer and which ones remain with your business.
Sources
- Ministry of Labour and Employment, Labour Codes portal
- Press Information Bureau, Government makes the four labour codes effective, 21 November 2025
- Ministry of Labour and Employment, Additional FAQs on the Labour Codes, March 2026
- PIB factsheet, Occupational Safety, Health and Working Conditions Code, 2020
- Ministry of Labour and Employment, labour law reforms
- gov.in, New labour code for new India
- Office of the Chief Labour Commissioner, labour law
- KPMG, Government of India notifies final rules on four labour codes, May 2026
- Herbert Smith Freehills Kramer, India labour codes implemented, December 2025
Frequently Asked Question
-
Are India's new labour codes in force?
Yes. All four codes took effect on 21 November 2025, replacing 29 central labour laws. The final Central Rules were notified on 8 May 2026. Most states have not yet notified their own rules, so employers follow the codes plus existing state rules until their state completes the process.
-
How many labour laws are there in India now?
Four central labour codes replaced 29 central acts on 21 November 2025. State legislation still applies alongside them, including shops and establishments acts, professional tax and labour welfare fund rules, so the practical number an employer tracks depends on how many states they employ people in.
-
Which labour laws apply to a private limited company in India?
Applicability runs on headcount, not company type. The Code on Wages applies from your first employee. ESI and OSH registration typically start at 10 workers, provident fund at 20, creche obligations at 50, and standing orders and retrenchment permission at 300. State shops and establishments rules apply throughout.
-
What are the working hour limits under Indian labour law?
Eight hours a day and 48 hours a week, across a maximum of six days, with at least one weekly rest day. Overtime requires the worker's consent and is paid at twice the ordinary wage rate. The Central Rules cap overtime at 144 hours per quarter.
-
Does an Indian employee need a written employment contract?
Every employee must now receive a written appointment letter in the format prescribed under the OSH Rules, covering designation, category, wages and social security entitlements. Employees who never received one had to be issued a letter within three months of the code taking effect. An informal offer email does not satisfy this.
-
What is the 50 percent wage rule and how does it change payroll cost?
Excluded allowances such as house rent and conveyance cannot exceed 50 percent of total remuneration. Anything above that is added back to wages. Since provident fund, gratuity and bonus are calculated on wages, allowance heavy salary structures see the statutory base rise, which increases employer cost and reduces employee take home pay.
-
What are the penalties for labour law non compliance in India?
Underpayment of wages carries a fine up to Rs 50,000 for a first offence, rising to Rs 1,00,000 and up to three months imprisonment for a repeat within five years. Safety breaches under the OSH Code reach Rs 2,00,000, and unpaid social security contributions can reach Rs 3,00,000 with imprisonment.
-
Does a foreign company need an Indian entity to hire legally?
No. A foreign company can employ people in India through an Employer of Record, which becomes the legal employer and holds the EPFO, ESIC and state registrations in its own name. Setting up a subsidiary usually takes 8 to 12 weeks. An EOR hire typically takes one to two weeks.
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