Labor laws in India: What should HR really care about right now?

If you feel like every conversation with finance or leadership suddenly includes the words "labour codes," "50 percent basic," or "gratuity impact," you are not imagining it. India has moved from talking about labour reforms to actually switching them on. Four consolidated Labour Codes are now in effect, replacing 29 older laws. For HR, this is not just a compliance update you can delegate to payroll; it is a complete reset of your entire employee value proposition, financial liability, and company culture.

This structural shift demands that HR moves beyond a checklist-based approach. The old days of keeping basic salary artificially low to save on statutory payouts are dead. The new rules directly affect the employer brand, and how employees perceive fairness. Ignoring this change means building a ticking time bomb of future statutory liability. The main question now is "How do these new Codes fundamentally reshape our entire HR ecosystem?"

The Great Simplification: 4 Codes That Replaced 29 Acts

The biggest change is the simplification itself. Instead of navigating a complex web of 29 laws, HR's compliance focus is now on these four strategic, interconnected Codes:

1. Code on Wages, 2019: Governs wages, bonus, and equal pay.
2. Code on Social Security, 2020: Covers PF, Gratuity, ESI, and maternity benefits.
3. Occupational Safety, Health and Working Conditions (OSH) Code, 2020: Deals with safety, welfare, and working hours.
4. Industrial Relations Code, 2020: Manages disputes, unions, and workforce restructuring.

This shift moves compliance from an administrative chore to a strategic function that must partner closely with Finance and Legal to avoid massive future liabilities. These are the most critical and impactful changes you need to address immediately.

1. The Death of the Low-Basic Salary Structure: The 50% Rule

This is the line that is causing the most heartburn in HR and payroll teams. Under the new Code on Wages, 2019, at least 50% of an employee’s CTC must now qualify as “Wages” for the purpose of calculating PF, Gratuity, and other social security benefits. 

• The Fix: You must immediately rework all CTC templates to ensure a minimum of 50% of CTC is the "wage" component.
  
  • PF and Gratuity obligations will go up because they are calculated on this higher wage base.
  • Take-Home Pay might go down slightly for many mid-to-senior employees as allowances get pulled back into the wage component.
  • HR must clearly explain that this shift pushes employees toward stronger retirement savings and higher long-term benefits, rather than just being a "government rule."

2. The Gratuity Game-Changer for Fixed-Term Employees

The other major talking point is gratuity under the Code on Social Security, 2020. Traditionally, eligibility required five years of continuous service. This is no longer the case for one specific, growing workforce segment:

• The Fixed-Term Liability: Fixed-term employees can now earn gratuity on a pro-rata basis after just one year of continuous service. This is a huge shift for industries that rely heavily on project contracts, seasonal roles, or year-on-year renewals.
• The HR Challenge: You can no longer assume that "short term" means "no long-term benefit liability." 
• The Fix:
  
  • Map all fixed-term roles and update your HRIS and payroll rules to calculate this new pro-rata liability.
  • Align your talent narrative: You can now position fixed-term roles as relatively secure and benefit-rich, which is a massive boost to your employer brand.

3. Flexible Working Hours Meet the 48-Hour Wall

The new Labour Codes and parallel state-level changes (like those in Karnataka, Maharashtra, and Odisha) are trying to balance flexibility with protection.

• The New Shift Models: The Codes keep the weekly working limit of 48 hours intact but offer flexibility in how those hours are distributed. This is how you are suddenly seeing conversations about four-day work weeks with 12-hour days or 10-hour shifts with longer breaks. 
• The Safety Mandate for Women: The Occupational Safety, Health and Working Conditions Code, 2020 standardizes permission for women to work night shifts across all establishments, provided their consent is obtained, and the employer ensures adequate safety and welfare provisions, including mandatory transport.

Create state-wise compliance matrices for working hours and overtime limits. Your shift rosters must align with the strictest applicable rule for each location.

If you consider a compressed work week, anchor the decision in wellbeing, not just efficiency. Run pilots and measure fatigue, attrition, and error rates, not just productivity. Safety and welfare provisions for night shifts for women are mandatory and non-negotiable.

4. Industrial Relations: Reshaping Layoffs and Strikes

The Industrial Relations Code, 2020, changes how HR manages disputes, restructuring, and terminations, aiming for an easier process but with new financial and procedural strings attached.

• Higher Retrenchment Threshold: For large industrial establishments (factory, mine, plantation), the requirement to seek prior government approval for layoff or closure has been raised from 100 to 300 or more workers. This offers greater flexibility to smaller and medium-sized enterprises but maintains strict oversight for large employers.
• Stricter Strike Rules: The Code mandates a 60-day advance notice for any strike and expands the definition of 'strike' to include mass casual leave, making sudden operational disruptions much harder to execute legally.
• The 2-Day Full & Final Settlement Rule: This is the most operationally challenging mandate: the requirement to complete an employee's full and final settlement within two working days of their removal or resignation. This demands a complete re-engineering of the exit management process, requiring real-time, seamless coordination between HR, payroll, and finance.

What practical steps should HR teams take? 

The shift to the four Labour Codes is a profound organizational change project that must be led by HR. Strategic readiness requires a focused, actionable plan:

• Review and Revise All Employment Contracts: Conduct a legal audit of every employment contract and offer letter. The primary goal is to ensure the salary breakdown adheres to the 50% statutory 'Wages' definition for all current and future employees.
• Tech Enablement is Non-Negotiable: The complexity of the new rules makes manual calculation a significant risk. Invest in or update your HRIS and Payroll software to handle the new statutory calculation logic automatically. 
• Communicate with Employees: Create simple, plain-language FAQs. Use natural questions like "Why did my take-home go down this month?" or "Am I eligible for gratuity on a one-year contract?" and answer them clearly.
• Partner with Legal Counsel: These are major structural changes, and some rules are still evolving through state-level notifications. Get a formal legal opinion before locking in long-term policies or big restructuring plans to ensure your interpretations are sound.
• Audit your use of gig/contract workers: Align contracts with the spirit of the new codes and clarify responsibilities for PF, ESI, safety, and leave to avoid later exposure.

Conclusion:

The new Labour Codes have set a higher floor for employee protection in India. HR leaders are no longer just the "policy police" or a payroll administrator. The law is actively pushing organizations toward greater fairness, better long-term security, and safer working conditions.

Your ability to successfully transition the organization to these four strategic, interconnected Codes, managing the financial hit, the communication narrative, and the operational overhaul will determine the company's long-term financial stability and its reputation as an employer.

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