Candour Legal – Best Lawyers in Ahmedabad | Law firm in Ahmedabad
By Candour Legal Team | 17 April 2026
India’s labour law architecture crossed a threshold on 21 November 2025, when the Ministry of Labour and Employment operationalised the four codes that had sat on the statute book for over five years. April 1, 2026 was the target date for the Central and State rule-making ecosystem to catch up. Seventeen days past that marker, the picture on the ground is uneven: a handful of states have notified all four sets of rules, most have drafts out for public consultation, and several components of the Codes themselves still await phased notification. This analysis of the Labour Codes April 2026 position is addressed to the compliance officer staring at a half-finished rulebook — and to the transactional, tax, and disputes practitioners whose working assumptions the Codes quietly rewrite.
Key Takeaways
- The Code on Wages, 2019, the Industrial Relations Code, 2020 (IR Code), the Code on Social Security, 2020 (SS Code), and the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code) stand notified as of 21 November 2025, replacing 29 central labour legislations.
- Draft Central Rules were published on 30 December 2025, with consultation periods of 30 days for the IR Code and 45 days for the remaining three. The Ministry issued clarificatory FAQs in January 2026 and a further round in March 2026, along with a Compliance Handbook for Central-sphere employers.
- The widely cited “50% rule” is the first proviso to Section 2(y) of the Code on Wages. It does not mandate a basic-pay restructuring; it caps statutory exclusions at 50% of total remuneration, with the excess deemed wages for statutory calculations.
- The IR Code’s 60-day strike notice under Section 62 now applies to all industrial establishments, not only public utility services as under the earlier regime — a material constraint on collective action that the trade unions have foregrounded.
- Gig and platform workers enter the statutory social security net for the first time under Chapter IX of the SS Code, with aggregator contributions set by Section 114(4) at one to two per cent of annual turnover, capped at five per cent of the annual amount paid to gig and platform workers.
Background and the Road to 21 November 2025
The four Codes received Presidential assent between August 2019 and September 2020. Their implementation stalled for half a decade, held back by the reality that labour — a subject on the Concurrent List — needed state-level rule-making before the framework could operate uniformly. The Union government’s decision to bring the Codes into force through four separate gazette notifications on 21 November 2025, supplemented by a corrigendum dated 19 December 2025, marked a deliberate break with the pattern of waiting for state readiness.
The legislative consolidation is substantial. The Code on Wages subsumes the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976. The IR Code replaces the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act, 1947. The SS Code consolidates nine welfare and social insurance statutes including the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and the Employees’ State Insurance Act, 1948. The OSH Code pulls together thirteen safety and working-conditions statutes, the Factories Act, 1948 among them.
The April 2026 Compliance Snapshot — What Is Actually in Force
A careful reading of the November gazette notifications reveals asymmetric commencement. The IR Code and the OSH Code have been brought into force in their entirety. Only select provisions of the Wage Code and the SS Code have been operationalised, with the balance awaiting corresponding Central and State rules. The transitional architecture preserves existing provident fund and employee state insurance schemes for a period of one year from 21 November 2025, a bridge intended to prevent disruption to existing contributions.
For compliance officers, the practical question is which legal instrument governs any given obligation today. Where the relevant Code provision has been notified AND the Central or State rules are in force, the new framework applies. Where either element is missing, the pre-existing Act continues to govern by virtue of the savings mechanism. This produces, in most states, a dual regulatory environment: the Codes apply to substantive rights and definitions, while procedural, registration, and return-filing obligations flow from the legacy regime. Compliance teams should note that this asymmetry is not a transitional quirk to ride out — it is a live structural feature of the current environment and likely to persist through 2026.
Section 2(y) and the Anatomy of the “50% Rule”
Commentary on the wage definition has, for several months, treated a 50% basic-pay mandate as a settled fact. A closer reading suggests something more precise. Section 2(y) of the Code on Wages — mirrored in Section 2(88) of the SS Code and carried into the IR and OSH Codes — defines wages to include basic pay, dearness allowance, and retaining allowance, then lists eleven categories of exclusions (clauses (a) through (k)) such as house rent allowance, conveyance, overtime, statutory bonus, and employer contributions to provident fund.
The first proviso is the operative provision. It caps the aggregate of clauses (a) to (i) at 50% of total remuneration. Where they exceed that cap, the excess is deemed to form part of wages for the purpose of statutory calculations under the Codes. Gratuity under clause (j) and retrenchment compensation under clause (k) are fully ring-fenced and do not enter the add-back. The Ministry of Labour and Employment’s FAQs of January 2026 clarified that “total remuneration” means wages plus all exclusions — in substance, the full cost-to-company. The March 2026 FAQs went further, confirming that employer provident fund and pension contributions and statutory bonus are counted for the 50% test, while gratuity, employees’ state insurance, and other retirement benefits are not. Performance-based incentives, employee stock options, and reimbursement-based payments fall outside the wage definition altogether under a 30 December 2025 clarification.
The Explanation to Section 2(y) carries a separate rule: where any part of remuneration is paid in kind, its value up to fifteen per cent of total wages is itself deemed part of wages. Employers providing food coupons, housing, transport, or similar in-kind benefits must account for this cap in their computation.
The operative consequence differs from what news reports often suggest. Employers are not legally required to restructure existing CTC compositions so that basic pay hits 50% of total remuneration. What the Code does is create an effective floor for the computation of provident fund, gratuity, retrenchment compensation, overtime, and notice pay — one that automatically expands the statutory base where allowance-heavy structures fall short. Payroll teams modelling the transition should focus on the deemed-wages mechanism and its effect on computational liabilities, rather than treating the 50% mark as a rigid restructuring obligation.
State-by-State: A Patchwork Compliance Map
The operational reality differs sharply across jurisdictions. The table below reflects the position as it stood in early 2026, drawing on Cyril Amarchand Mangaldas’s January 2026 sixty-day review and the Khaitan & Co Employment, Labour and Benefits bulletin for March 2026.
| State / UT | Status across the four Codes |
|---|---|
| Gujarat, Haryana, Madhya Pradesh, Maharashtra | Final rules notified under all four Codes |
| Karnataka | Final rules under the Wage Code and IR Code; other Codes in progress |
| Arunachal Pradesh, Bihar, Mizoram | Final rules notified under multiple Codes |
| Kerala | Final rules across all four Codes, notified shortly after the first wave |
| Delhi | Final rules under the Wage Code and SS Code; IR Code and OSH Code rules pending |
| Uttar Pradesh, Andaman & Nicobar Islands | Draft rules published in March 2026 |
| Two states or UTs (not individually confirmed) | Yet to publish even draft Wage Code rules |
For employers with multi-state establishments, the resulting compliance calculus is complex. A single employment policy cannot yet be applied uniformly: spreadover limits, leave accrual rates, registration forms, return-filing portals, and minimum wage schedules vary by state. Harmonised internal drafting — appointment letters, standing orders, HR policies — should be built against the Central framework, with state-specific annexures layered on top. Organisations that have historically maintained one master HR manual will find that approach no longer tenable.
Gig and Platform Workers in the Social Security Net
Chapter IX of the SS Code, for the first time, brings unorganised workers, gig workers, and platform workers within the formal ambit of statutory social security. Section 2(35) defines a gig worker as a person who performs work outside the traditional employer-employee relationship; Section 2(60) defines a platform worker as one who accesses organisations through an online platform; Section 2(6) defines the aggregator.
Section 114 authorises the Central Government to frame schemes for life and disability cover, accident insurance, health and maternity benefits, old-age protection, and similar welfare measures. Section 114(4) sets the aggregator contribution at one to two per cent of annual turnover, capped at five per cent of the total amount paid or payable by the aggregator to gig and platform workers in the relevant financial year — whichever is lower. This is a distinct statutory fund, not an extension of the Employees’ Provident Fund regime. Section 113 requires registration on the e-Shram portal; each worker receives an Aadhaar-linked unique identification number under which benefits are portable across platforms.
A Press Information Bureau release in December 2025 framed the shift as a transition “from informal to protected”. The ground-level picture is more qualified. As of late 2025, the e-Shram portal had registered roughly 300,000 platform workers against an estimated population of ten million. The draft rules of late 2025 prescribe a minimum of 90 days of platform work in the preceding year for scheme eligibility — a threshold civil society submissions, including from the Indian Federation of App-based Transport Workers, have argued excludes a significant share of seasonal and part-time workers and should be reduced to 60 days. How aggregator contributions will be assessed in the context of workers engaged simultaneously by multiple platforms remains unsettled in the draft rules.
Implications for M&A and Deal-Exit Architecture
The Codes reshape several parameters that transactional counsel treat as settled inputs. The compressed two-working-day full-and-final settlement timeline under the Code on Wages alters closing mechanics for share sales where separations occur around the transaction date. Fixed-term employees’ entitlement to gratuity at one year of service under Section 53 of the SS Code — rather than the earlier five — increases the accrued liability picture for target companies with deep fixed-term benches, a point that due diligence teams must now build into working-capital adjustments and closing-account reconciliations.
On the IR Code side, the raised threshold for standing orders and for government permission before retrenchment or closure — now applicable to establishments employing 300 or more workers, as against the earlier 100 under Chapter VB of the Industrial Disputes Act, 1947 — expands the employer’s operational flexibility in mid-sized manufacturing facilities. For M&A practitioners, this alters the calculus in carve-outs, post-closing workforce integration, and closure planning. Representations and warranties on labour compliance will need to be recast around Code-era definitions; tax indemnities must now contemplate the deemed-wages principle and its effect on historical provident fund exposure. Insolvency practitioners will find the SS Code’s five-year limitation on social security proceedings relevant to resolution-plan architecture in going-concern sales under the Insolvency and Bankruptcy Code, 2016 — that limitation defines the outer boundary of historical claim exposure the resolution applicant inherits.
Counter-Positions and the Legitimacy Debate
The operationalisation has not been uncontested. A joint statement by a platform of Central Trade Unions issued on 21 November 2025 characterised the move as “pro-corporate” and called for the Codes to be withdrawn. The Centre of Indian Trade Unions framed the four statutes as instruments of “corporate driven labour market deregulation”, pointing to three structural shifts. The 60-day prior notice under Section 62 of the IR Code applies to all industrial establishments, where the Industrial Disputes Act, 1947 had confined the requirement to public utility services — a meaningful extension of the procedural barrier to collective action. The 300-worker threshold for standing orders and prior-permission retrenchment removes a large swathe of mid-sized establishments from statutory protection against layoff. The Inspector-cum-Facilitator model shifts the enforcement orientation from adversarial inspection to guided compliance, which the unions argue dilutes worker-side enforcement leverage. Nationwide protests were scheduled alongside the farmers’ movement in late November 2025.
The industry position, represented through submissions from the Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry, has largely welcomed the consolidation while seeking clarity on transitional compliance, digital single-window infrastructure, and harmonisation of state rules. The concern shared across sides is the absence of a uniformly available digital compliance backbone — the stated single-registration and single-return architecture remains a work in progress at the central portal level and has not yet been operationalised in most states. Until that infrastructure is in place, the “ease of doing business” narrative that accompanied the Codes will outrun the operational reality.
Looking Ahead
The transition has moved from legislative debate to administrative execution, and the next two quarters will determine how smoothly the operational cutover lands. Three developments are worth monitoring closely: the completion of state-level rule notifications in the remaining jurisdictions; clarificatory guidance from the Ministry on aggregator contribution mechanics, the e-Shram eligibility threshold, and the treatment of multi-platform gig workers; and judicial interpretation of the deemed-wages principle in early challenges before High Courts and the provident-fund appellate tribunal. Employers with multi-state footprints should treat the next ninety days as a compliance diagnostic window — mapping each establishment against the applicable state rules, re-examining CTC structures against the Section 2(y) add-back test, and recalibrating exit-settlement processes against the two-working-day timeline.
Frequently Asked Questions
What are the four Labour Codes and when did they come 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 were notified in the Official Gazette on 21 November 2025 through four separate notifications, supplemented by a corrigendum dated 19 December 2025. Together they consolidate and replace 29 earlier central labour statutes.
What exactly does the 50% rule under the Code on Wages require?
The first proviso to Section 2(y) of the Code caps the aggregate of clauses (a) to (i) of the excluded components at 50% of total remuneration. Where those excluded components exceed 50%, the excess is deemed to be wages for statutory calculations under the Codes. The Code does not independently mandate that basic pay must equal 50% of CTC, though the deemed-wages mechanism has a similar practical effect on provident fund and gratuity computation for allowance-heavy pay structures. Gratuity and retrenchment compensation under clauses (j) and (k) are ring-fenced from the add-back.
Which states have notified rules under all four Labour Codes?
As of April 2026, Gujarat, Haryana, Madhya Pradesh, and Maharashtra have notified rules across all four Codes, with Kerala following shortly after. Karnataka has notified under the Wage Code and IR Code. Delhi has notified under the Wage Code and SS Code, with IR Code and OSH Code rules pending. Two states or union territories had yet to publish even draft Wage Code rules as of early 2026.
How are gig and platform workers covered under the new framework?
Chapter IX of the SS Code grants them formal statutory recognition for the first time. Section 114(4) sets the aggregator contribution at one to two per cent of annual turnover, capped at five per cent of the annual amount paid to gig and platform workers. Benefits are portable via Aadhaar-linked e-Shram registration under Section 113. Draft rules require a minimum of 90 days of platform work in the preceding year for scheme eligibility. Ground-level registration remains a small fraction of the estimated gig workforce.
What has changed in the full-and-final settlement timeline?
The Code on Wages requires full-and-final settlement of wages on termination or resignation within two working days of the last working day. This is a significant compression from the timelines under the legacy regime and has operational implications for payroll systems, M&A closings, and grievance architecture.
