On November 21, 2025, India’s labour law framework underwent a transformative overhaul with the four comprehensive Labour Codes: The Code on Wages (2019), the Industrial Relations Code (2020), the Code on Social Security (2020), and the Occupational Safety, Health and Working Conditions (OSHWC) Code (2020). These codes consolidate 29 outdated laws into a streamlined framework aimed at boosting worker protections, easing business operations, and aligning India with global standards. While they promise benefits like universal minimum wages, expanded social security, and digital compliance, they also ramp up enforcement with steeper penalties.
Why the New Codes matter in 2026?
As we step into 2026, the implications of the New Labour Codes are becoming increasingly tangible for businesses, HR teams, and MSMEs. These Codes are not just a legislative update—they fundamentally reshape how organisations must manage their workforce, payroll, and compliance obligations.
Key reasons why they matter:
- Broader Coverage of Employees – Workers who were previously outside statutory protections, such as gig workers, fixed‑term staff, and informal employees, are now explicitly included under various Codes. This increases the number of compliance touchpoints for businesses.
- Stricter Penalties and Enforcement – The Codes define fines clearly and allow for cumulative penalties across different regulations. Non‑compliance, even in small administrative areas like wage definitions or record‑keeping, can now attract substantially higher financial exposure.
- Digital Compliance and Monitoring – With unified registration, digital returns, and inspector‑cum‑facilitator mechanisms, enforcement has become more efficient and less reliant on manual oversight. This reduces opportunities to miss deadlines or procedural requirements without consequence.
- Alignment with Global Standards – The reforms aim to standardise workplace protections, wages, and safety measures, helping Indian businesses comply with international labour expectations, which is increasingly important for foreign investment and partnerships.
The New Codes are both an opportunity and a challenge: while they simplify some processes and expand worker protections, they also demand careful attention to avoid fines and reputational risk.
The Subtle Changes That Could Amplify Your HR Liabilities
1. Stricter Wage Payment and Record-Keeping Rules (Code on Wages): The new uniform wage definition includes basic pay, dearness allowance, and retaining allowance, but caps exclusions (like allowances) at 50% of total remuneration. If allowances exceed this, they’re reclassified as wages, inflating provident fund (PF), gratuity, and bonus calculations. This applies to all employees—no more wage thresholds like the old ₹24,000 limit under the Payment of Wages Act.
This seemingly technical adjustment has sweeping implications. Salary structures that were previously designed to minimize statutory payouts must now be recalibrated. Gratuity, retrenchment compensation, leave encashment, and social security contributions will all be calculated on a broader base. Employers who fail to restructure risk not only inflated liabilities but also exposure to fines that have been raised dramatically—from the earlier range of a few thousand rupees to as high as ten lakhs, and up to twenty lakhs for repeat offences. In effect, a misstep in payroll design can now double the financial consequences for HR compliance.
2. Expanded Social Security Contribution Enforcement (Code on Society Security, 2020)
Social security now covers gig, platform, and fixed-term workers, with aggregators contributing 1-2% of turnover (capped at 5% of payments to workers). Fixed-term employees get pro-rata gratuity after one year, parity in benefits, and compulsory insurance for gratuity (unless you have an approved trust or 500+ employees). Thresholds remain: PF for 20+ employees, ESI for 10+ (or 1 in hazardous work), gratuity for 10+.
- Compliance Risk: Non-registration, failure to pay contributions, or defaults attract fines starting at ₹50,000, with potential additional daily penalties for continuing violations. Wilful evasion or withholding employee contributions: up to ₹1 lakh fine and/or 3 years’ imprisonment (higher for repeats). Underpayments for gig/platform worker schemes could trigger penalties linked to turnover contributions.
- Compared to old Employees’ Provident Funds Act, 1952 had lower caps (e.g., ₹5,000-50,000 for many defaults). Now, first offenses can often be compounded at 50-75% discount, but repeats of the same or similar offense within 3 years bar compounding and rectification opportunities, forcing payment of the full escalated maximum—often doubling (or more) the effective financial burden.
- HR Action: Issue appointment letters to all (mandatory now) and register gig workers via central schemes. Budget for higher contributions due to broader wage definitions.
3. Enhanced Penalties for Industrial Disputes and Standing Orders (Industrial Relations Code, 2020)
The new Labour Code raises the threshold for mandatory standing orders (internal service rules on employee conduct and conditions) to establishments with 300 or more workers, up from the previous 50–100 (varying by state). This exempts smaller organizations from the requirement, easing their compliance burden. However, for larger establishments, non-compliance such as failing to certify or update standing orders, now carries steeper penalties: up to ₹2,00,000 for the first offence (a 40-fold increase from ₹5,000), doubling to ₹4,00,000 on repeat, with possible imprisonment up to 3 months. HR-related violations like unfair labour practices or illegal lockouts attract fines of ₹10,000–₹2,00,000 initially, rising to ₹50,000–₹5,00,000 on recurrence.
During restructurings, procedural lapses (e.g., improper retrenchment notices) may trigger fines of ₹1,00,000–₹10,00,000, potentially doubling on repeat. These changes impose significantly higher financial and legal risks on larger organizations, making regular compliance reviews and strong HR practices essential.
4. Stricter Safety and Working Conditions (OSH Code)
Another major change is the move toward centralized compliance. The Occupational Safety, Health and Working Conditions Code and the Social Security Code envisage single-window registration and filings. While this reduces administrative burden, it also makes errors more visible. A mistake in filings is now easier for authorities to detect and penalize.
This Code unifies safety norms across factories, mines, and offices, requiring single registrations and welfare facilities (e.g., creches for 50+ employees). Breaches like non-maintenance of safety records or hazardous process violations now start at ₹50,000-₹3,00,000, with daily continuations adding ₹2,000-₹25,000.
Repeats double penalties to ₹1,00,000-₹6,00,000, plus imprisonment up to 2 years—far exceeding the ₹1,00,000 cap under the Factories Act. For HR, this impacts overtime limits (125 hours/quarter) and annual leave entitlements; violations causing accidents could lead to ₹5,00,000 fines (doubled from prior laws), escalating to ₹10,00,000 on repeat. Post-2025 inspections emphasize third-party audits—neglect them, and your fines could double overnight.
The MSME Exemption Hack: Leveraging Thresholds for Compliance Relief
Recognizing the disproportionate burden on smaller enterprises, the Codes provide conditional relief for MSMEs. Establishments below certain employee thresholds may be exempt from select provisions, and simplified filings are permitted. This reduces clerical risks and compliance costs.
The Hack in Action:
To benefit from regulatory relaxations under the new Labour Codes, registering enterprise as an MSME through the Udyam portal. Keeping the workforce below 50 employees avoids the need for prior government approval for layoffs, retrenchment or closure, and eliminates mandatory amenities such as canteens or crèches (if required, cost-effective compliance can be achieved by pooling resources with nearby units or partnering with NGOs). For non-hazardous operations with fewer than 10 workers, certain statutory registrations can be skipped, and ESI/PF contributions remain voluntary through mutual agreements with employees, thereby avoiding compulsory deductions. These thresholds offer smaller businesses greater operational flexibility.
Conclusion
The New Labour Codes 2025 are designed to simplify compliance but simultaneously raise the stakes for non-compliance. The redefinition of wages, expansion of employee coverage, broadened employer accountability, and centralized filings all increase liability. Penalties are higher, repeat offences are punished more severely, and exemptions for MSMEs are conditional.
For HR leaders, the imperative is clear: restructure salary packages, extend compliance systems to senior management and contract labour, train teams on the new penalty framework, and document eligibility before invoking MSME relief. In this new regime, prevention is far cheaper than cure. The Codes may promise ease of doing business, but they also demand vigilance.earch collaborators – is often the fastest way to learn how real deals survive the 73% failure filter and join the 27% that actually close.
The views expressed are for informational purposes only and should not be construed as legal advice. For specific guidance on cross-border digital evidence matters, consult qualified legal counsel.
