New Labour Code 2025: What It Means for Your Business in 2026
Last updated: 12 September 2026
The four Labour Codes came into force on 21 November 2025. For most Indian SMEs the real shift shows up in everyday work: salary structure, PF and gratuity numbers, fixed term contracts, and how cleanly your HR records sit when an inspector or auditor asks. This guide covers what changed, what to prepare, and how Offrd helps you keep paperwork ready.
1. What changed in the four Labour Codes?
The government consolidated 29 older labour statutes into four codes. The everyday impact for founders shows up in salary structure, contracts, records, and payroll.
Code on Wages, 2019
- Minimum wage and timely payment now apply to almost all employees, not only scheduled jobs.
- At least 50 percent of total pay is treated as wages for PF, gratuity and bonus.
- Full and final settlement is expected within two working days of exit.
Industrial Relations Code, 2020
- Fixed term employees sit close to permanent staff and earn gratuity pro rata after one year.
- Standing Orders apply to establishments with 300 or more workers.
- Grievance Redressal Committee expected at 20 or more workers.
Code on Social Security, 2020
- EPF coverage broadens to most industries with 20 or more employees.
- Gratuity pro rata for fixed term roles, no longer only after five years.
- Commuting accidents between home and workplace are treated as employment injury.
OSH Code, 2020
- One digital register, one return, one form covers many safety and establishment compliances.
- Wider definition of worker pulls in some supervisory roles.
- Updated thresholds for restrooms, canteens, creche and sanitation.
2. What do the Labour Codes mean for your company in 2026?
State notifications are now landing through 2026. These are the questions founders and HR managers usually bring to us.
Do I need to change salary structures?
Yes if a large part of pay is currently pushed into allowances. The wage code expects at least half of the CTC to be treated as wages. That changes PF, gratuity and bonus going into 2026.
Will PF contributions go up for us?
They can. When more of the salary moves into the wage component, the PF base grows. Small adjustments in 2025 can change your real PF outflow this year.
Do we need to update employee records and registers?
Yes. The shift to digital registers, single returns and updated formats means clean, consistent data. Scattered spreadsheets become harder to defend once enforcement is active.
Are fixed term employees treated differently now?
Yes. Fixed term contracts now sit close to permanent roles and qualify for gratuity on a pro rata basis. That changes how you plan short projects and seasonal hiring.
When do the new Labour Codes take effect in India?
The four Labour Codes were formally brought into force on 21 November 2025. State-level rules and notifications continue to roll out. Most SMEs will feel the operational impact through the 2026 payroll year.
Do I need to change salary structures under the wage code?
Yes if a large part of pay is currently pushed into allowances. The wage code expects at least 50 percent of the CTC to be treated as wages, which affects PF, gratuity and bonus calculations.
Will PF contributions go up under the new codes?
They can. When more of the salary moves into the wage component, the PF base grows. Even small adjustments in 2025 can change your PF outflow in 2026.
What is the new full and final settlement timeline?
Final wages are expected to be settled within two working days of the last day of employment, subject to state notifications.
Does overtime change?
Overtime is paid at twice the regular wage rate. If your business runs extra hours during peak months, you need a clean way to track hours and compute pay correctly.
3. How does Offrd keep your paperwork ready?
Most of what the new codes ask for is documentation and clean records. Offrd is built around exactly that for Indian SMEs.
What you can do inside Offrd today
- Create structured offer letters for India with clear CTC breakup and probation terms.
- Set salary structure that puts wages and allowances in a balance the new wage definition recognises.
- Generate clean monthly payslips and registers ready for audit. Try the payslip generator.
- Track attendance, overtime and work days in one place so overtime calculations stay consistent.
- Store offer letters, joining letters, experience letters and other HR documents in one account.
- For deeper context on contributions, see our ESI and PF compliance guide.
An employee on ₹30,000 CTC needs at least ₹15,000 treated as wages. Offrd lays this out in the offer letter and payslip so PF, gratuity and bonus all share one clear base.
A fixed term employee with 12 months continuous service can be eligible for pro rata gratuity. Offrd keeps the joining date, contract terms and exit letters together so you can calculate from the record.
4. What scenarios are founders facing in 2026?
These are the conversations landing on founder and HR desks through 2026.
Rebalance gradually so wages form at least half of the total. Offrd lets you rebuild structures and issue updated letters without rebuilding everything from scratch.
Fixed term and short tenure employees are closer to permanent for benefit math. Plan for gratuity and social security when you budget for projects.
With commuting accidents now treated as employment injury, clean records of working days, roles and coverage matter. Keeping HR data in one tool helps you respond quickly.
5. Download: SME checklist for the new Labour Codes
A one page reference for finance, HR and leadership covering the main items to watch through your 2026 payroll planning.
6. Frequently asked questions
Are the new Labour Codes fully implemented?
The four codes were brought into force on 21 November 2025. Implementation depends on central and state notifications. Many SMEs are using 2026 to bring payroll and records in line.
What are the biggest changes for small businesses?
Three places: how salary is structured, how PF and gratuity are calculated, and how clean your records and registers are. Offrd focuses on these practical pieces.
Do we need a law firm or consultant to handle this?
For complex situations, yes. For everyday letters, payslips and registers most businesses just need a clean way to create and store records, which is what Offrd does.
Does this page replace legal advice?
No. This is a practical explainer for founders and HR managers. Always check with a labour lawyer or compliance specialist for decisions specific to your industry, state, and history.
Is Offrd available in multiple languages?
Offrd is currently available in English and is built for Indian businesses.
How do you get your HR paperwork 2026 ready?
Use Offrd to write offer letters, set salary structure, generate payslips and keep HR records in one place, while you focus on running the business.