New Indian Labour Laws Explained

What Employees in India Need to Know

India’s labour laws shape how employees are paid, how long they work, what benefits they receive, and what protections apply at the workplace. For decades, these rules were spread across multiple Acts, often leading to confusion for employees and uneven implementation across companies and states.

To simplify this, the Government of India consolidated 29 central labour laws into four Labour Codes. While these reforms are often discussed from an employer or HR perspective, they also have direct and long-term implications for employees, especially full-time corporate professionals.

This blog explains the new Indian labour laws in simple language, with practical examples and a clear focus on what employees should understand when reviewing their salary slips, benefits, and employment terms.

Since When Are the New Labour Laws Effective?

The four Labour Codes were passed between 2019 and 2020, and since then, both the Central Government and State Governments have been issuing rules under these codes.

What this means in practice

• The labour codes are being implemented in a phased manner
• Many states have notified draft or final rules
• Companies have already begun aligning salary structures, PF calculations, and HR policies.
• Full enforcement depends on final notifications by the Centre and respective States.

For employees, this means the impact is already visible in salary restructures and payroll changes, even as formal enforcement continues to roll out across India.

TL;DR: What Changed for Employees

If you are a full-time corporate employee in India, here is what the new labour laws mean for you:

• Your basic salary is likely higher than before
• Your Provident Fund (PF) contribution increases.
• Your monthly take-home pay may reduce slightly.
• Your gratuity amount increases over time.
• Salary structures become more transparent and standardized.
• Fixed-term employees now receive equal statutory benefits.
• Working hours and overtime rules are more clearly defined.

In short, the reforms prioritise long-term financial security over short-term cash in hand.

Why India Reformed Its Labour Laws

Earlier, India had 29 separate labour laws, many drafted decades ago. These laws:

• Used inconsistent definitions of wages
• Allowed heavy use of allowances to reduce PF and gratuity
• Created confusion around working hours and leave
• Were difficult for employees to interpret

The four new Labour Codes aim to:

• Standardise wage definitions
• Strengthen social security
• Improve clarity around working conditions
• Create uniform protections across industries

The Four Labour Codes Explained Simply

Employees do not need to read the legal text. The impact appears in salary slips, HR policies, and employment contracts.

Salary Structure Changes Under the New Labour Laws

What the law clarifies

The Code on Wages clearly defines what counts as “wages” and limits how much of total pay can be structured as allowances.

As a result:

• Basic salary forms a larger share of CTC
• In many companies, basic pay is around 50 percent of total compensation

This is why employees may see changes in their salary breakup even when total CTC remains unchanged.

Real Salary Example: Old vs New Structure

Example: Monthly CTC of ₹1,00,000

Earlier structure (typical earlier)

• Basic salary: ₹30,000
• Allowances: ₹70,000
• Employee PF (12% of basic): ₹3,600
• Take-home pay (approx): ₹96,400

Revised structure (aligned with labour codes)

• Basic salary: ₹50,000
• Allowances: ₹50,000
• Employee PF (12% of basic): ₹6,000
• Take-home pay (approx): ₹94,000

What changed

• Take-home reduces by about ₹2,400
• PF savings increase by ₹2,400 every month
• Employer PF contribution increases equally
• Gratuity value increases over time

This highlights the trade-off between short-term cash and long-term benefits.

Provident Fund: What Employees Should Know

For full-time corporate employees:

• PF is calculated on the basic salary
• Higher basic means higher PF contribution
• Employer contribution rises in parallel
• Retirement savings grow faster

Key point: PF reduces monthly take-home but builds a tax-efficient retirement corpus.

Gratuity: Why Long-Term Employees Benefit More

Gratuity remains payable after five years of continuous service with the same employer.

Since gratuity is calculated using basic salary:

• Higher basic pay increases gratuity payout
• Longer tenure becomes more financially rewarding

For employees who stay with organisations long term, this is a clear advantage.

Fixed-Term Employees: Equal Treatment Under the Law

Under the new framework, fixed-term full-time employees must receive:

• The same wage structure as permanent employees
• Provident Fund and social security benefits
• Regulated working hours and leave
• Proportionate gratuity, where applicable

This removes earlier disparities between permanent and fixed-term roles.

Working Hours and Overtime Explained Clearly

Standard limits

• Maximum 8 hours per day
• Maximum 48 hours per week

Flexibility allowed

• Shift-based work
• Compressed work weeks
• Flexible scheduling models

Important protection

• Overtime must be paid
• Unpaid overtime is not permitted
• Companies must clearly define overtime policies

This is especially relevant for corporate employees working late hours or across time zones.

Leave Rules Under the New Framework

Earned leave

• Roughly 1 day of earned leave for every 20 days worked
• Unused leave may be carried forward or encashed, as per company policy

Other leave provisions

• Sick leave continues
• Maternity benefits remain unchanged
• State-specific rules may apply

The goal is greater clarity and consistency.

Job Security and Layoff Rules

These provisions mainly apply to organisations with 300 or more employees.

• Government approval required for mass layoffs or closures
• Individual performance-based exits remain allowed
• Notice period and severance rules continue

For employees, this means stronger oversight on large-scale job losses.

Impact Across Employee Types

What Employees Should Check With HR

Employees should review:

• Updated salary breakup
• PF contribution details
• Gratuity eligibility date
• Working hours and overtime policy
• Employment classification

This avoids surprises during appraisals, exits, or audits.

Why This Matters for Modern Companies

Clear wage definitions and compliant payroll structures reduce disputes and simplify audits. As companies adopt digital payroll, expense management, and compliance systems, clarity in employee compensation becomes critical.

These reforms align with how modern organisations manage employee costs in a structured and transparent way.

Final Takeaway

The new Indian labour laws aim to create fairer pay structures, stronger social security, and clearer employment rules. While some employees may see a small dip in monthly take-home pay, the long-term gains through PF, gratuity, and job protection are meaningful.

For full-time corporate professionals, these changes support financial stability over the long run.

FAQs: New Indian Labour Laws

1. When did the new Indian labour laws come into effect?
The labour codes were passed between 2019 and 2020 and are being implemented in phases through central and state notifications. Many companies have already aligned payroll and HR policies.

2. Do the new labour laws reduce take-home salary?
In some cases, yes. Higher basic salary increases PF contribution, which may slightly reduce take-home pay while improving long-term savings.

3. Does PF contribution increase under the new laws?
Yes. PF is calculated on basic salary, which now forms a larger part of CTC.

4. Are fixed-term employees treated like permanent employees?
Yes. Fixed-term full-time employees receive equal statutory benefits under the new framework.

5. Do working hours change under the new labour laws?
Standard limits remain 8 hours per day and 48 hours per week, with flexibility for shifts and compressed schedules.

6. Is gratuity affected by the new labour laws?
Yes. Higher basic salary increases gratuity payouts over time.