2026 is the first full year of operating under India’s four Labour Codes, and most of what changes this year is enforcement rather than new law.
Eight things worth knowing if you employ people in India.
1. The Codes are in force, and the thresholds moved
The four Codes replaced twenty-nine central labour laws on 21 November 2025. Central rules followed on 8 May 2026. State rules are still being notified and are not uniform, which is the detail that matters most if you employ across states.
Specific changes to check against your own headcount:
- Wages due by the 7th of the following month. The concession for employers with 1,000 or more staff to pay by the 10th has been removed.
- Deductions capped at 50% of wages in any wage period.
- Final settlement within two working days of an exit.
- Certified standing orders now apply at 300 workers, raised from 100.
- Prior government permission to retrench, lay off or close also moved from 100 to 300.
- Equal pay now expressly covers transgender employees, widened from the male and female framing of the Equal Remuneration Act.
2. Gig and platform workers are now inside the framework
The Code on Social Security, 2020 brought gig and platform workers into scope for the first time. The important structural point for businesses: the obligation sits on the aggregator, and it is measured on turnover, not payroll.
That catches companies that assumed a small headcount kept them out of scope. If you operate a platform connecting workers to customers, check the aggregator definition rather than counting employees.
3. Working hours and overtime are being enforced more closely
Hours, overtime and rest periods sit under the OSH and Working Conditions Code, 2020, which absorbed the Factories Act.
The complication is state law. Your state’s Shops and Establishments Act governs a commercial office, and several states amended theirs during 2025 and 2026, generally moving the daily limit from nine hours to ten and changing quarterly overtime caps. Those amendments are not uniform and some are not yet in force. Check the current position for each state you operate in rather than applying one national rule.
The practical failure here is rarely policy. It is that overtime gets approved informally in chat and never reaches payroll.
4. Hybrid work creates a state problem
The compliance issue with hybrid and remote work in India is not productivity monitoring. It is that professional tax, minimum wages and Shops and Establishments rules follow where the employee actually works, not where your office is registered.
An employee who moved to another state during the pandemic and never moved back may have been on the wrong statutory settings for years. This is the single most common error we find when taking over payroll.
Employee monitoring is also now a data question under the Digital Personal Data Protection Act, 2023, where you need a purpose for what you collect and should collect no more than that purpose needs.
5. Diversity obligations that already apply
Two are legal requirements rather than initiatives, and both are widely missed.
Under section 21 of the Rights of Persons with Disabilities Act, 2016, every establishment must publish an equal opportunity policy and register a copy. There is no headcount threshold. Note that the 4% reservation under section 34 applies to government establishments; the 5% figure quoted for the private sector is an incentive target, not a quota.
POSH continues unchanged. An Internal Committee is mandatory at ten employees regardless of gender mix, and the annual return goes to the District Officer by 31 January even in a year with no complaints.
6. Gratuity now accrues earlier for fixed-term staff
The change most likely to affect your costing: a fixed-term employee is entitled to the same statutory benefits as a permanent employee doing the same work, pro-rated, and gratuity accrues after one year instead of five.
If you use fixed-term contracts, cost gratuity from year one. The offsetting point is that expiry of the term is not retrenchment, so no compensation, notice or permission is required when it simply ends.
7. Compliance is becoming a commercial requirement
ESG reporting obligations sit with large listed companies, but they reach smaller businesses through the supply chain. Enterprise clients increasingly ask vendors to evidence labour compliance as part of onboarding.
In practice that means being able to produce your POSH policy and committee, proof of statutory filings, and your employment contract template on request. Companies that can do that in an afternoon win work from companies that cannot.
8. Smaller employers are getting more attention
The assumption that inspectors only bother with large companies is comforting and wrong. PF and ESI compliance is visible through your own filings, so a gap does not require anyone to visit.
The most common exposure at MSME scale is workers engaged as consultants who function as employees. It is also the most expensive to unwind, because liability accrues from the start of the engagement rather than from when it was noticed.
What to actually do this year
- Check your handbook for references to repealed Acts. If it cites the Factories Act or the Payment of Wages Act as live obligations, it needs updating.
- Confirm statutory settings per state, not per company.
- Constitute the POSH committee if you have ten or more people, and diarise the January return.
- Publish and register the equal opportunity policy. It applies at any size.
- Cost gratuity from year one for fixed-term staff.
The short version
Nothing here requires a compliance function. It requires someone to check the current rules for each state you employ in, once, and then keep a calendar.
The two changes most likely to cost you money this year are the two-working-day settlement deadline and gratuity accruing at one year for fixed-term employees. Both are easy to miss because neither looks like a headline.
If tracking this is not a good use of your week, our compliance service covers registrations, filings and policy upkeep across states. Send us your headcount and locations.
Frequently Asked Questions
Which four Labour Codes are now in force in India?
The Code on Wages, the Occupational Safety Health and Working Conditions Code, the Code on Social Security, and the Industrial Relations Code. All four came into force on 21 November 2025; central rules followed on 8 May 2026.
What changes for wages under the Code on Wages?
The central 50 percent rule: basic pay plus DA must be at least 50 percent of gross wages. That directly raises PF, gratuity and leave encashment liabilities for most companies whose CTCs previously kept basic below 40 percent.
What are the key changes for SMEs under the Social Security Code?
A single social security framework, expanded coverage for gig and platform workers, and consolidated EPF, ESIC and gratuity administration. Coverage thresholds and contribution rules remain broadly similar for now, but reporting and audits are tightening.
Do state rules still matter after the Labour Codes came into force?
Yes. Labour is a Concurrent List subject, so each state issued (or is issuing) its own rules under the four Codes. Where state and central rules differ on the same topic (typically shop hours, PT bands, leave), the applicable rule is the state one.
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