Labour Codes in Outline
India replaced 29 separate central labour statutes with four consolidated Labour Codes — the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code — and this chapter covers them at the outline depth the CMA syllabus expects: the headline thresholds and definitions a commerce candidate should be able to state and apply, not a full labour-law practitioner's depth.
A word on implementation status, since this is a live, moving fact rather than settled history: the four codes were notified into force as central legislation on 21 November 2025, and their central rules were finalised on 8 May 2026.
Because labour sits on the Concurrent List, each state must also notify its own rules before the codes take full practical effect there, and as of 2026 several major industrial states were still finalising their state-level rules — so treat the codes as centrally in force with state-level rollout still catching up, rather than either "fully pending" or "fully and uniformly applied everywhere" today.
1. The Code on Wages, 2019
The Code's single most examined provision is its uniform definition of "wages," built specifically to stop employers restructuring pay to shrink statutory dues. Basic pay, dearness allowance and retaining allowance together must make up at least 50% of an employee's total remuneration; if other components (HRA, conveyance, overtime, bonus, commission, employer's PF contribution) are structured to exceed 50% of the total, the excess over 50% is added back into "wages" for computing provident fund contributions, gratuity and retrenchment compensation.
Gratuity itself is excluded from this 50% test, since it is a separate terminal benefit rather than a running wage component.
The Code also empowers the Central Government to fix a national floor wage, after consulting state governments, and — this is the structural change from the pre-Code regime — no state may set its own minimum wage below this floor. This is a genuine shift from the old "National Floor Level Minimum Wage," which was purely advisory and routinely ignored by states; under the Code, the floor is designed to be legally binding once notified.
2. The Industrial Relations Code, 2020
The IR Code's headline number is 300 — the worker-count threshold, raised from the earlier 100, above which an establishment must maintain certified Standing Orders (a formal, government-approved document of service conditions) and must obtain prior government permission before any layoff, retrenchment or closure.
Below 300 workers, an establishment may lay off, retrench or close without needing prior government permission, though notice and compensation obligations still apply — this single threshold change is what most fundamentally altered the ease of exit for mid-sized Indian manufacturing.
A new obligation introduced by this Code is the worker re-skilling fund: on retrenching a worker, an employer must additionally contribute an amount equal to 15 days' wages (last drawn by that worker) into a re-skilling fund, credited to the worker's account within 45 days of retrenchment — this is paid on top of, not instead of, the standard retrenchment compensation of 15 days' wages per completed year of service.
3. The Code on Social Security, 2020
This Code's most significant innovation is that it is the first Indian statute to formally recognise "gig workers" and "platform workers" as distinct categories, separate from traditional employees, and to extend social-security coverage to them.
Funding for this new coverage comes from aggregators — platforms in specified categories such as ride-hailing, food and grocery delivery, and logistics (the Seventh Schedule lists nine such categories) — who must contribute to a social security fund at a rate of not less than 1% and not more than 2% of their annual turnover, subject to a second cap: the contribution cannot exceed 5% of the amount the aggregator pays to its gig and platform workers.
4. The Occupational Safety, Health and Working Conditions Code, 2020
This Code raised two separate headline thresholds that a candidate should keep distinct. The contract-labour licensing threshold — the worker count above which a principal employer must register and a contractor must hold a licence — was raised from 20 to 50 workers.
Separately, the factory definition threshold was raised too: a with-power establishment now needs 20 or more workers (up from 10) and a without-power establishment needs 40 or more workers (up from 20) to be classified as a "factory" under the Code, triggering the Code's fuller set of factory-specific safety obligations. General occupational safety and welfare obligations continue to apply more broadly, at the lower 10-worker level, for establishments that do not separately cross the factory or contract-labour thresholds.
Worked Examples
Example 1. An employee's monthly CTC of ₹1,00,000 is structured as: Basic ₹30,000, Dearness Allowance ₹10,000, HRA ₹35,000, Conveyance and other allowances ₹25,000. Apply the Code on Wages' 50% rule to find the "wages" figure used for PF and gratuity computation.
Basic + DA (the wage-defining components here) = ₹40,000, which is only 40% of the ₹1,00,000 total — below the 50% floor. The excess of the non-wage components over 50% (₹60,000 actual non-wage components − ₹50,000 the 50% ceiling allows) = ₹10,000 must be added back. Wages for statutory computation = ₹40,000 + ₹10,000 = ₹50,000.
Example 2. A factory employs 250 workers. Under the Industrial Relations Code, does it need government permission before retrenching 20 of them?
No — the 300-worker threshold for mandatory prior government permission applies only to establishments with 300 or more workers, and this factory employs 250.
Example 3. A worker retrenched after 6 completed years of service last drew wages of ₹20,000 per month (₹667 per day, approximately). Calculate the standard retrenchment compensation and the separate re-skilling fund contribution.
Retrenchment compensation = 15 days' wages per completed year × 6 years = 15 × 667 × 6 ≈ ₹60,000. Re-skilling fund contribution (a flat, separate amount) = 15 days' wages = 15 × 667 ≈ ₹10,000 — credited to the worker's account within 45 days, in addition to the retrenchment compensation.
Example 4. A food-delivery aggregator has annual turnover of ₹500 crore and pays ₹80 crore in total to its delivery (gig) workers during the year. If the Central Government sets the aggregator contribution rate at 1.5% of turnover, calculate the contribution, applying both caps under the Code on Social Security.
1.5% of ₹500 crore = ₹7.5 crore. Second cap: 5% of ₹80 crore (amount paid to gig workers) = ₹4 crore. Since ₹7.5 crore exceeds the ₹4 crore cap, the actual contribution payable is capped at ₹4 crore.
Example 5. A without-power manufacturing unit employs 35 workers. Is it classified as a "factory" under the OSH Code?
No — a without-power establishment needs 40 or more workers to be classified as a factory under the OSH Code; 35 workers falls below this threshold, though general occupational safety obligations may still apply.
Example 6. A garment manufacturer engages 45 contract workers through a placement contractor. Does the contractor need a licence under the OSH Code's contract-labour provisions?
No — the contract-labour licensing threshold under the OSH Code is 50 workers; 45 workers falls below it, so the contractor is not required to hold a licence under this specific threshold (other general obligations may still apply).
Example 7. State, in one sentence each, the single distinguishing headline number for each of the four Labour Codes covered in this chapter.
Code on Wages: at least 50% of total remuneration must be basic pay + DA + retaining allowance for wage computation. Industrial Relations Code: 300 workers is the threshold for mandatory standing orders and prior permission before layoff/retrenchment/closure.
Code on Social Security: aggregators contribute 1-2% of turnover (capped at 5% of gig-worker payouts) to a social security fund covering gig and platform workers. OSH Code: contract-labour licensing threshold is 50 workers, and factory classification requires 20+ (with power) or 40+ (without power) workers.
Summary
The four Labour Codes consolidated 29 central labour statutes and became centrally effective on 21 November 2025 with central rules from 8 May 2026, though state-level rule rollout remains uneven across major industrial states as of 2026 — a live implementation fact rather than settled history.
The Code on Wages' 50% rule stops CTC restructuring from shrinking PF, gratuity and retrenchment dues, and empowers a now-binding national floor wage. The Industrial Relations Code's 300-worker threshold governs standing orders and prior-permission requirements before layoff, retrenchment or closure, alongside a new 15-day re-skilling fund contribution on every retrenchment.
The Code on Social Security is the first Indian statute to formally cover gig and platform workers, funded by an aggregator contribution of 1-2% of turnover capped at 5% of gig-worker payouts. The OSH Code raised the contract-labour licensing threshold from 20 to 50 workers and the factory-classification thresholds to 20 (with power) and 40 (without power) workers.
