India’s four labour codes have been in force since 21 November 2025, and the Central Rules that make them operable were notified on 8 May 2026. That second date is the one most HR teams missed. The codes set the framework; the rules started the clocks. One of those clocks, the window for issuing appointment letters to employees who never received one, was set at three months from commencement of the OSH Central Rules, which points to a deadline that has now passed.
TL;DR: 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 took effect on 21 November 2025, rationalising 29 central labour laws. The Central Rules under all four were notified on 8 May 2026. The cost driver is the statutory definition of wages: where excluded allowances exceed one-half of total remuneration, the excess is deemed to be wages, which lifts the base for provident fund, gratuity and leave encashment. Fixed-term employees now qualify for gratuity after one year instead of five. And because labour sits on the Concurrent List, an employer operating in three states can face three different rule positions under one central law.
For a conceptual view of why the consolidation happened, our earlier piece on navigating India’s labour reforms covers the architecture. This piece is about what has actually landed, what it costs and what has to be rebuilt.
What Changed on 21 November 2025, and What Changed Again on 8 May 2026
The Government of India brought all four codes into effect on 21 November 2025, consolidating 29 existing central labour laws. That much was widely reported. What followed was less so.
Draft Central Rules were published on 30 December 2025 for consultation. The final Central Rules under all four codes, covering wages, social security, industrial relations and occupational safety, were notified on 8 May 2026 and took effect the same day, the OSH set through G.S.R. 345(E).
Two consequences follow, and they pull in opposite directions. The Central Rules apply only where the central government is the appropriate government for the establishment, which for most private-sector employers it is not, so the operative detail comes from state rules that most states have not notified.
But the arithmetic in the codes themselves is not waiting for anyone. The wage definition, the gratuity qualifying period and the social security thresholds sit in the primary statutes and bind now, regardless of where your state has got to. That is the practical position nine months in: pay the codes, file the states.
The 50 Percent Wage Rule Is the Whole Cost Story
Everything expensive in these codes traces back to one clause. Section 2(y) of the Code on Wages, 2019 defines wages as all remuneration including basic pay, dearness allowance and retaining allowance, then excludes components such as house rent allowance, conveyance allowance, overtime, commission, bonus and employer provident fund contributions.
Then comes the proviso. Where payments under those excluded clauses exceed one-half of total remuneration, or such other percentage as the Central Government notifies, the amount exceeding that half is deemed to be remuneration and added back into wages.
Read that carefully, because it is a deeming provision, not a design instruction. It does not require you to restructure salaries so that basic pay is 50 percent. It says that if you do not, the law will treat the excess as wages anyway.
The Press Information Bureau put the effect plainly in its November 2025 factsheet on the Code on Social Security: where payouts such as bonus, house rent allowance, conveyance allowance, overtime allowance or commission exceed 50 percent of total remuneration, the excess is added back to wages, increasing the value of benefits linked to wages including gratuity, pension and leave salary. A related detail catches employers who pay in kind: remuneration in kind is deemed part of wages up to 15 percent of total wages payable.
Indian salary structures have spent three decades being engineered in the opposite direction, with basic pay held low and allowances stacked high to suppress provident fund and gratuity liability. That arbitrage is now closed. In my experience the organisations that struggle most are not those with the largest workforces but those with the most creative CTC structures, because every allowance line has to be re-examined and every offer letter template reissued.
What the Codes Cost: The Line Items That Belong in the Budget
The honest answer to “what will this cost us” is that it depends entirely on your existing salary architecture, and any consultant quoting you a single percentage without seeing your payroll file is guessing. What can be stated is where the cost arises.
| Cost head | What drives it | Who it hits hardest |
|---|---|---|
| Provident fund | Employer contribution computed on a wage base that rises wherever excluded allowances exceed one-half of total remuneration | Employers with low basic pay and high allowance stacking |
| Gratuity accrual | Same widened wage base, applied to accrued and future liability | Long-tenure workforces, where the actuarial revision is retrospective in effect |
| Fixed-term gratuity | Section 53 of the Code on Social Security reduces the qualifying period for fixed-term employees from five years to one, payable on a proportionate basis | Project-based, seasonal and contract-heavy models |
| Provident fund coverage | The Code applies EPF to all establishments with 20 or more employees regardless of industry, removing the earlier Schedule 1 list | Sectors previously outside the notified schedule |
| Crèche | Every establishment with 50 or more employees must provide a crèche within a prescribed distance, or pay an allowance of not less than INR 500 per month per child for up to two children | Mid-sized establishments crossing 50 for the first time |
| Overtime | Payable at twice the rate of wages, on a wage base that has itself widened, capped at 144 hours per quarter | Manufacturing, logistics and shift-based operations |
| Aggregator contribution | Between 1 and 2 percent of annual turnover toward the social security fund for gig and platform workers, capped at 5 percent of amounts paid or payable to them | Platform businesses only |
Frequently asked questions
- When did the four labour codes come into effect in India?
- All four codes came into force on 21 November 2025, consolidating 29 existing central labour laws. The Central Rules operationalising them were notified on 8 May 2026 and took effect the same day. Because labour is a Concurrent List subject, each state and union territory must notify its own rules, and as of August 2026 most remain at the draft stage. The practical position is that obligations contained in the codes themselves apply now, while registration, register and return formats continue to follow legacy state rules until a state notifies replacements.
- What is the 50 percent rule under the Code on Wages?
- Section 2(y) of the Code on Wages, 2019 defines wages to include basic pay, dearness allowance and retaining allowance while excluding components such as house rent allowance, conveyance allowance, overtime, commission and bonus. The proviso states that where those excluded payments exceed one-half of total remuneration, or another percentage notified by the Central Government, the excess is deemed remuneration and added back into wages. It is a deeming provision rather than a structural mandate: employers are not obliged to set basic pay at 50 percent, but if they do not, the statutory wage base rises anyway. Because provident fund, gratuity and leave encashment are computed on wages, this clause is the principal cost driver across all four codes.
- How much will the labour codes increase employment costs?
- There is no single credible percentage, because the increase depends entirely on how much of your remuneration sits in excluded allowance components. An employer already paying basic pay above half of total remuneration may see almost no change; one with basic pay at 30 percent and a heavy allowance stack will see a material rise. The costs arise in identifiable places: provident fund on a widened base, gratuity accrual on that same base including service already rendered, gratuity for fixed-term employees after one year rather than five, crèche obligations above 50 employees, free annual health check-ups, and overtime at twice the rate. Platform businesses additionally face an aggregator contribution of 1 to 2 percent of annual turnover, capped at 5 percent of amounts paid to gig and platform workers. The only reliable method is to run the test against your own payroll file.
- Do fixed-term employees now get gratuity?
- Yes. Under Section 53 of the Code on Social Security, 2020, the qualifying period for gratuity for fixed-term employees has been reduced from five years to one year, payable on a proportionate basis once the employee completes one year of continuous service. Fixed-term employees are also entitled to the same social security benefits as permanent employees. This changes the economics of fixed-term contracting, which many organisations adopted specifically to stay below the five-year threshold. Any workforce plan built on rolling fixed-term contracts should be re-costed rather than assumed unchanged.
- Are appointment letters now compulsory for all employees in India?
- Yes. Mandatory issuance of appointment letters to all workers is a headline obligation under the Occupational Safety, Health and Working Conditions Code, 2020, and the Central Rules notified on 8 May 2026 prescribe both the format and the particulars required. The rules set a three-month window from commencement for issuing letters to employees who had not previously received one, so for establishments where the central government is the appropriate government, that window has closed. Employers governed by state rules should check their own state’s position. For establishments employing contract or blue-collar workers without formal documentation, this is the most visible compliance gap and among the easiest to remedy.
A Closing Note
Nine months in, the pattern I see is consistent. The legal analysis has usually been done. The payroll test usually has not.
People strategy is business strategy in execution, and here the two are the same conversation. A change to the wage definition is not an HR policy matter that finance is copied on. It moves the provident fund line, the gratuity provision, the actuarial valuation and, for listed and PE-backed businesses, the disclosure. Organisations that treat it as a compliance task hand it to a manager and get a checklist. Organisations that treat it as an operating-model change hand it to HR and finance jointly and get a plan.
If you want a view of where your structure actually sits against the codes, Astravise Services runs compensation architecture reviews and HR governance redesign for organisations scaling across multiple states, including through our Strategic CHRO advisory. Start with the payroll file. The rest of the plan writes itself once you know the number.