New Labour Codes: A Legal Interpretation
As India transitions toward the new Labour Codes regime, questions around legal clarity, implementation readiness, and state-level harmonisation continue to shape industry preparedness. In his legal interpretation, Manishi Pathak, Founding Partner, Anhad Law, analyses the evolving framework and its implications for employers, compliance, and workforce management.
How do you assess the readiness of the legal and regulatory framework for implementing all four labour codes from April 2026, particularly in light of the current level of preparedness and clarity in rules?
The legal framework suggests that India is moving towards a unified labour law regime; however, in practical terms, it appears that the ecosystem may not yet be fully ready for seamless implementation as of April 2026. The four Labour Codes, the Code on Wages, 2019 (“Wage Code”), Industrial Relations Code, 2020 (“IR Code”), Code on Social Security, 2020 (“SS Code”), and the Occupational Safety, Health and Working Conditions Code, 2020 (“OSH Code”) (collectively “Labour Codes”), have been brought into force from November 21, 2025, consolidating 29 central labour laws and introducing reforms such as digitised compliance and a facilitative approach to enforcement.That said, the current readiness of the legal and regulatory ecosystem is still transitional rather than fully settled. A fundamental structural aspect that must be factored into this assessment is that labour is a concurrent subject, meaning both the Central and State Governments are empowered to legislate and frame rules. While the Central Government has re-notified draft rules under all four Labour Codes, these rules remain at the consultation stage and have not yet been finalised. Similarly, most major states including Haryana, Karnataka, Delhi, Madhya Pradesh, Punjab and Rajasthan, have released draft rules under one or more Labour Codes, but these too are pending finalisation. The absence of notified, enforceable rules at both the Central and State levels create a significant implementation gap, particularly in a framework where compliance obligations are rules driven.
From a practical standpoint, this leads to multiple layers of uncertainty. A key concern is the overlap between the Labour Codes, particularly the OSH Code and the existing state-specific shops and establishments acts. These state laws continue to operate and regulate key aspects such as working hours, leave entitlements, holidays, opening/closing hours, and maintenance of registers. At the same time, similar subject matters are now covered under the OSH Code and its corresponding rules. In the absence of explicit harmonisation or repeal, this creates a situation of parallel applicability, leading to inconsistencies in provisions such as daily and weekly working hours, leave structures, carry forward and accumulation limits, formats of registers and returns, and other procedural compliances for establishments. The government has not yet provided sufficient clarity on how these overlapping frameworks will interact. In the absence of clear harmonisation, this results in creating confusion, dual compliance requirements, and potential employee claims based on inconsistent provisions.
This concern becomes significantly more pronounced in construction, infrastructure, and mining sectors, where establishments are not static but operate through multiple project sites across different states. Employers in these sectors are already subject to location-specific compliances and implementation of the Labour Codes without harmonised state rules could result in parallel compliance obligations at each project site.
One of the immediate challenges under the Wage Code relates to the revised definition of “wages.” While the law seeks to standardise components, clarity is still awaited on the treatment of various allowances that are not expressly covered within the definition or fall outside the scope of the Labour Codes, such as children education allowance, performance-based allowance, and other variable allowances. However, in the absence of finalisation of final rules and settled jurisprudence, organisations are forced to take positions based on evolving guidance, which may later require recalibration.
In addition, the Wage Code introduces stringent timelines for payment of “wages” at the time of termination, retrenchment, or resignation, within two (2) days of the employee’s last working day. A similar expectation applies to leave encashment payouts. While this reflects a pro-employee intent, its practical feasibility, particularly in large organisations or in cases involving complex payroll computations remains uncertain, raising concerns around operational readiness and the ability to consistently meet such timelines at scale. In construction and infrastructure sectors, compliance with the 2-day wage payment requirement is particularly challenging. The workforce typically comprises short-term, contract labour, fixed-term employees, and inter-state migrant workers, largely in blue-collar roles. Employment arrangements are often informal, with wages sometimes paid in cash and records maintained loosely, especially across multiple subcontracting layers and project sites. In such circumstances, timely computation and disbursement of final wages within 2 days of exit could provide operational difficulty.
Under the SS Code, while coverage has expanded to include gig workers and platform-based workers, the operational framework, such as schemes, contribution mechanisms, and registration mechanism remains unclear and incomplete. This creates a disconnect between statutory intent and enforceability.
Further, even under the IR Code, certain mechanisms reflect incomplete readiness. For instance, the Worker Reskilling Fund requires employers to contribute 15 days’ wages for retrenched employees, with timelines prescribed for deposit (within 10 days) and disbursal (within 45 days). However, the fund itself is yet to be operationalised. In sectors such as construction and mining, where workforce requirements are inherently cyclical and linked to project lifecycles, retrenchment and redeployment may be common occurrences. The absence of a functional reskilling ecosystem may limit the practical utility of this provision and create additional financial obligations.
Additionally, recent regulatory developments also indicate a transitional approach. The government has clarified through notification that the existing dispute resolution authorities under the erstwhile Industrial Disputes Act, 1947 will continue to function until new authorities under the IR Code are constituted. This underscores that the institutional framework required for full implementation is still being put in place, and similar transitional arrangements may arise in other areas as well.
Another cross-cutting issue across all four Labour Codes is the transition from the existing regime to the new framework. Since the Labour Codes are in force but operational details remain incomplete, employers are effectively in a hybrid compliance environment. This raises critical questions: whether to continue complying strictly with existing laws, whether to proactively align with Labour Codes-based principles, and how to manage potential retrospective implications once rules are finalised. On the positive side, the government has taken steps to bridge the clarity gap through FAQs, circulars, and stakeholder consultations. However, these measures are incremental and do not substitute the need for legally binding, final rules and schemes.
In conclusion, although the legislative foundation is in place, the regulatory and operational readiness is uneven. The current phase is best viewed as a transition or “soft rollout,” and until clarity emerges on rules and harmonisation, employers will need to adopt a cautious, flexible, and jurisdiction-sensitive approach to compliance.
What key legal ambiguities or drafting gaps do you identify in the codes, especially in areas such as dispute resolution, enforcement, and definitions?
The Labour Codes represent a shift towards a more standardised and principle-based framework; however, several legal ambiguities and drafting gaps remain, particularly in areas of definitions, enforcement, and dispute resolution, more so for execution-heavy sectors such as construction, mining, and infrastructure.At the outset, one of the most significant concerns lies in the definition of “wages”. While the Labour Codes attempt uniformity by prescribing inclusions and exclusions subject to a 50% cap, ambiguity arises under the SS Code in the context of gratuity. The draft central rules introduce additional exclusions (such as performance-linked payments, stock options, reimbursements, and similar benefits), but do not clarify whether these are to be considered within the 50% cap under the wage definition or treated as independent exclusions. This creates uncertainty in structuring compensation and calculating statutory dues. Further, clarity is still awaited on treatment of commonly used components such as children education allowance, performance-based and variable allowances and other components which are not expressly addressed in the definition of wages.
A related ambiguity arises in gratuity entitlement for fixed-term employees (“FTE/s”). The IR Code prescribes a one-year service threshold for gratuity eligibility, whereas the SS Code suggests a pro rata entitlement even without meeting the qualifying period. Additionally, draft rules appear to reintroduce a one-year service threshold for gratuity eligibility threshold along with rounding-off principles. This creates two layers of uncertainty, first, whether gratuity is payable only after one year or from day one on a pro rata basis; and second, whether the conventional six-month rounding rule applies to FTEs. In the absence of harmonisation, this remains a key interpretational issue.
Under the OSH Code, the definitional framework has been widened, but this also creates ambiguity. Notably, “contract labour” now includes inter-state migrant workers, which expands coverage but blurs the distinction between two previously separate categories, leading to uncertainty on applicable compliances and benefits. The concept of “core activity” has now been standardised across jurisdictions, with a general prohibition on engaging contract labour in such activities. However, broad exceptions, such as “sudden increase in volume of work” or work ordinarily done through contractors, are open to interpretation. For instance, what constitutes a “sudden increase in volume of work” is not objectively defined, creating scope for varied interpretations. This may lead to situations where the exception is invoked even in the absence of genuine exigencies, thereby diluting the intended restriction on core activities. Consequently, while the concept of “core activity” is now more clearly articulated, the breadth of its exceptions may give rise to compliance uncertainty and potential misuse.
A separate inconsistency arises in the treatment of fixed-term employment, where the IR Code uses the term “worker” while the SS Code uses “employee” when defining FTEs. Given that these terms have different scopes, this creates uncertainty in determining the applicability of benefits and protections across Labour Codes.
From an enforcement perspective, the shift to a digital and facilitative compliance model, such as inspector-cum-facilitator and web-based systems, is progressive in intent, but operationally under-defined. There is limited guidance on how these mechanisms will function for mobile, temporary, or remote worksites, or how inspections will be coordinated across multiple contractors at a single project location. This leaves significant reliance on future rules and administrative practice, which may vary across jurisdictions.
The IR Code has failed to prescribe any strict timelines for conciliation resolution in strike-notice cases (14-day notice triggers mandatory conciliation, during which strikes are illegal). This can create indefinite delays, effectively suspending worker action without guaranteed outcomes.
A related ambiguity also arises under the SS Code from the breadth of the definition of “employee” and its interaction with contract labour arrangements. The definition is wide enough to include persons employed through contractors, and several obligations under the Code are triggered at the level of the “employer” without always clearly distinguishing between contractor and principal employer for each benefit.
Finally, the overall framework is heavily dependent on subordinate legislation and yet-to-be-finalised rules, resulting in a transitional “hybrid” regime. Employers are required to interpret incomplete provisions, increasing the likelihood of inconsistent positions and future litigation.
In conclusion, while the Codes aim to simplify and modernise labour regulation, their broad drafting, cross-code inconsistencies, and reliance on evolving rules leave several operational questions unresolved. These ambiguities are likely to translate into cautious compliance approaches and increased dispute exposure until further regulatory clarification and judicial interpretation emerge.
To what extent could variations between central and state rules affect legal consistency, compliance, and the potential for disputes or litigation?
At the outset, it is important to recognise that labour is a concurrent subject under the Constitution of India, which empowers both the Central and State Governments to legislate and frame rules. While the four Labour Codes aim to create a harmonised and uniform framework, they are designed as enabling legislations, with significant aspects left to subordinate rule-making by the ‘appropriate government’. In practice, this means that once a state notifies its own rules, those rules will govern establishments within that state.From a strict legal standpoint, therefore, these variations do not always result in direct non-compliance within a particular state, since employers are expected to follow the applicable state-specific framework. However, this does not eliminate the broader challenges. Variations across states can still affect legal consistency, especially for organisations operating across multiple locations, where the same workforce category may be subject to different regulatory standards depending on geography.
One of the illustrations of this divergence is in relation to working hours and overtime. The OSH Code and its corresponding rules at the central level envisages 8 hours per day and 48 hours per week as the standard working limits. However, certain States, through their draft OSH rules, have introduced flexibility. For instance, Karnataka contemplates a model where under the draft OSH Rules, the daily working hours may vary from 8 hours to 11 and a half hours depending on the number of working days in a week. While this approach may be operationally efficient at the state level, it creates a clear departure from the central position on daily limits.
A similar inconsistency is emerging under the social security framework. The draft Social Security (Central) Rules, 2025 expressly recognise certain exclusions for gratuity computation, such as performance-linked annual payments shall form part of exclusions under the definition of wages, and benefits like stock options, medical reimbursements, and meal vouchers shall not form part of wages. However, some state draft rules (for instance, Karnataka and Rajasthan) do not expressly deal with such exclusions. This creates ambiguity on whether these components should be excluded consistently across jurisdictions or interpreted conservatively in the absence of explicit state-level provisions, thereby increasing the risk of inconsistent gratuity calculations and potential disputes.
It is a settled law that in case of inconsistency between the Central Code and a state rule/law, the Central Code provision usually prevails. However, if a state rule provides a more favourable benefit to the employee (e.g., higher leave accumulation e.g. OSH Code caps at 30 days, but a state like Andhra Pradesh or Telangana historically allows 60), the employee is entitled to the superior state benefit.
In addition, the current transitional stage, where central rules are still in draft form and many state rules are yet to be finalised, adds another layer of complexity. Employers are required to interpret and prepare for a framework where both levels of rule-making are evolving, increasing the likelihood of divergent interpretations until the position stabilises through final rules or judicial guidance.
Do the codes achieve a balanced framework between worker protection and employer flexibility, and would a phased implementation have enabled a smoother transition?
The four Labour Codes reflect a deliberate policy attempt to strike a balance between strengthening worker protections and introducing greater flexibility for employers, and at a conceptual level, that balance is broadly visible. However, the effectiveness of that balance is closely tied to how the Labour Codes operates in practice.On the worker protection side, the Labour Codes move towards greater formalization and standardization. The Wage Code creates a uniform wage definition and strengthens enforceability around minimum wages and timely payment. The OSH Code consolidates and extends safety and welfare obligations across sectors, and brings within its scope categories such as inter-state migrant workers, gig workers and platform-based workers. It provides formal recognition and social security schemes for gig/platform workers besides mandatory written appointment letters, standardised occupational safety norms, and equal benefits for fixed-term employees (parity in wages, hours, and gratuity after one year). The IR Code while rationalizing the dispute resolution framework, continues to provide statutory safeguards around termination, retrenchment, and industrial disputes. Collectively, these measures push the system towards greater transparency, documentation, and baseline protection for workers, including those in informal and contract-based roles.
At the same time, the Labour Codes introduce greater flexibility and rationalization for employers. The recognition of fixed-term employment under the IR Code aligns with project-based hiring models and allows employers to engage labour for defined durations without long-term workforce commitments, while still extending proportionate benefits. The move towards common registrations, unified returns, and digitized compliance systems reduces administrative fragmentation. The introduction of the inspector-cum-facilitator framework indicates a shift from a purely enforcement-led regime to one that is intended to be more compliance-oriented and less adversarial. In addition, the consolidation of multiple laws into four Labour Codes reduces overlap and, in principle, simplifies the legal landscape.
However, in sectors such as construction, mining, and infrastructure, this balance operates with a degree of tension. These sectors are characterized by: (i) project-based and time-bound execution; (ii) multi-layered contracting structures; and (iii) a largely mobile and informal workforce.
In this context, measures aimed at strengthening worker protection, such as stricter wage structuring, expanded social security coverage, mandatory issuance of appointment letters, and nuanced compliance obligations, also translate into increased cost, documentation burden, and operational adjustments for employers.
Against this backdrop, a phased implementation would likely have enabled a more stable transition. A staggered rollout could have: (i) allowed greater alignment and harmonization of state rules, reducing interpretational differences across jurisdictions; (ii) provided employers time to recalibrate wage structures, renegotiate contracts, and revisit workforce arrangements; and (iii) enabled capacity building for enforcement authorities, particularly in sectors with decentralized and site-based operations.
Do you believe there has been adequate stakeholder consultation in the formulation of these codes, and how might this influence their implementation on the ground?
Stakeholder consultation in the formulation of the Labour Codes has been fairly wide, with inputs stated to have been taken from industry bodies, worker representatives, and public feedback, along with detailed review by Parliamentary Standing Committees. These discussions covered key aspects such as definition of wages, thresholds for applicability, dispute resolution, safety and welfare standards, and expansion of social security. The overall approach has been to create a more uniform and consolidated framework across sectors. However, in hindsight, it seems that the stakeholder consultation in the formulation of these codes has not been adequate.From a practical standpoint, the way these provisions play out on the ground vary significantly, especially in sectors like construction, mining, and infrastructure, where workforce structures and project execution models are inherently complex. For instance, under the OSH Code, concepts such as “principal employer”, “contract labour”, and inclusion of inter-state migrant workers widen the compliance net across multi-layered contractor chains. In large projects involving Engineering, Procurement and Construction (“EPC”) contractors, sub-contractors, and labour suppliers, this improves accountability but also creates practical challenges in tracking compliance and allocating responsibility across multiple tiers.
Similarly, the uniform definition of “wages” has a direct impact on social security contributions under the SS Code. For infrastructure and EPC projects operating on fixed-price contracts, this can increase labour costs and require recalibration of contractor pricing and project budgets.
In construction, mining, and infrastructure sectors, fixed-term employment has already been widely used in practice given the project-based nature of work, where manpower is engaged for specific phases and durations. The IR Code formalizes this approach. At the same time, fixed-term employees are entitled to gratuity after one year of service on a pro rata basis, under the IR Code. While this strengthens worker protection and aligns with the reality of continuous short-term deployments across projects, it also introduces an additional cost element that employers will need to factor into workforce planning and contract pricing, particularly where workers are rotated across sites or retained across project phases.
Further, provisions on working hours, overtime at twice the rate of wages, welfare facilities, and mandatory documentation such as appointment letters will require stronger systems for workforce management. This is particularly relevant given that a large portion of the workforce in these sectors has traditionally been informal and site-based. Implementing digital records, ensuring timely wage payments, and managing full and final settlements for a mobile workforce may pose initial operational challenges, especially at remote project sites.
In this context, the nature of stakeholder consultation influences implementation less in terms of acceptance of the law, and more in how smoothly it translates into day-to-day operations. Since many operational details are to be prescribed through rules, differences in state-level implementation and the need for practical clarity may lead to some variation in how businesses comply, particularly in the early stages.
Published on:
01 June 2026
Share:
We Value Your Comment
