Introduction
In November 2025, the Government of India brought the four labour codes into force 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. This step consolidated 29 central labour statutes into a single legislative framework. That was the first phase. The second phase arrived in May 2026, when the Ministry of Labour and Employment (MoLE) notified the Central Rules under all four codes. Codification gave employers a new statutory architecture. The Central Rules give that architecture its operating detail, and with it, a fresh compliance timeline that Indian employers now need to work through.
From Codification to Operationalisation
The Central Rules apply only where the Central Government is the appropriate government, meaning banking, insurance, telecommunications, mining, air transport, railways, major ports and central public sector undertakings fall within their scope. Employers outside these sectors will need to track their respective state rules, several of which remain in draft. For establishments that do fall within central jurisdiction, the rules are already operative and immediate. The four notifications, the Code on Wages (Central) Rules, 2026, the Industrial Relations (Central) Rules, 2026, the Social Security (Central) Rules, 2026, and the Occupational Safety, Health and Working Conditions (Central) Rules, 2026, together prescribe wage calculation methods, social security contributions, dispute resolution procedures, model standing orders and workplace safety standards in a level of detail the codes themselves did not attempt.
What Changed: Wages and Payroll Structuring
The single most consequential change sits in the definition of wages itself. Under the Code on Wages, at least 50% of an employee’s total compensation must now be structured as basic pay and dearness allowance, with allowances and other components capped at the remainder. Provident fund, gratuity, bonus and leave encashment are all computed on this restructured wage base, which raises statutory contribution costs for most employers who had historically kept basic pay low relative to total cost to company. Fixed term employees now receive wages, hours and statutory benefits on par with permanent employees performing similar work, and their gratuity accrues after one year of service rather than the five years applicable to permanent staff. Full and final settlement on separation, whether by resignation, retrenchment, dismissal or retirement, must now be completed within two working days, a sharp compression from the 30 to 45 day settlement periods many employers previously followed.
What Changed: Industrial Relations and Workforce Flexibility
The Industrial Relations Code raises the threshold for government approval before retrenchment, layoff or closure from 100 to 300 workers, giving mid sized employers materially more flexibility than they had under the Industrial Disputes Act. That flexibility comes with new procedural obligations rather than none at all. Employers proposing retrenchment of a worker with at least one year of continuous service must serve notice in Form XIII on the Central Government and the concerned Deputy Chief Labour Commissioner, display a seniority list at least seven days before retrenchment, and give retrenched workers preference for reemployment for a year afterward. Closure requires 60 days of prior notice. Employers must also contribute an amount equal to 15 days of the retrenched worker’s last drawn wages to a Worker Re-skilling Fund within ten days of the retrenchment.
On the union side, a trade union commanding at least 30% membership in an establishment is recognised as the sole negotiating union, with a negotiating council formed where no single union crosses that threshold. Strikes and lockouts now require 14 days of advance notice across all industries, not only public utility services as before, and are barred entirely while conciliation or adjudication proceedings are pending. Illegal strikes can attract fines of up to ₹5 lakh for a first offence.
What Changed: Safety, Contract Labour and the Gig Workforce
The Occupational Safety, Health and Working Conditions Code raises factory registration thresholds from 10 to 20 workers for premises using power and from 20 to 40 workers for those without, bringing a number of smaller establishments outside the definition of a factory altogether. Appointment letters are now mandatory in a prescribed format, and workers above the age of 40 in specified categories such as dock work and construction are entitled to a free annual health examination. Principal employers and contractors face enhanced obligations on wage payment, minimum bonus, contractor settlements and experience certificates, alongside a common licensing mechanism intended to simplify contract labour compliance.
The Code on Social Security extends formal recognition, for the first time, to gig and platform workers as a distinct class entitled to social security coverage, funded through aggregator contributions of 1 to 2% of annual turnover into a Social Security Fund, with registration conducted through a centralised Aadhaar linked portal. Employers, public and private alike, must also report vacancies to designated career centres within 90 days of the relevant provision taking effect. Commuting accidents between home and workplace are now classified as employment related injuries eligible for compensation, a meaningful expansion of employer liability under the Code.
The Compliance Gap Employers Still Face
None of this is uniformly in force. Labour remains a concurrent subject, and the Central Rules bind only central sphere establishments while state governments finalise their own versions, several of which are still in draft. Employers operating across multiple states will, for some time, be reconciling a central baseline against a patchwork of state timelines and local variations. The Central Rules also introduce a broader shift in enforcement posture. First time offences across many provisions now attract monetary fines rather than imprisonment, moving the compliance model toward a more remediable, penalty led approach. For employers, this transition period is less a single deadline and more a rolling set of obligations that will keep surfacing as individual states catch up to the central framework.
AMLEGALS Remarks
The Central Rules notified in May 2026 mark the point at which India’s labour codification stopped being a legislative exercise and became an operational one. Employers within central jurisdiction now face concrete obligations on wage restructuring, retrenchment procedure, contract labour licensing and gig worker contributions, several of which carry short compliance windows and direct cost implications, most notably the 50% wage rule and the two-day full and final settlement requirement. Employers outside central jurisdiction should not treat the state rules gap as a reason to wait. Payroll structures, appointment letter formats, standing orders and contractor agreements will all need review regardless of which government is the appropriate authority for a given establishment, and building that readiness now, ahead of state notifications, remains the lower risk course.
For any queries or feedback, feel free to connect with Dhwani.tandon@amlegals.com or Mayur.punjabi@amlegals.com