New Labour Codes State-Wise Implementation: Which States Have Notified Rules

India passed four landmark labour codes between 2019 and 2020, consolidating 29 fragmented central labour laws into a unified framework covering wages, industrial relations, social security, and occupational safety. The Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), and Occupational Safety, Health and Working Conditions Code (2020) received Presidential assent and are law on paper. The problem: they cannot take effect until both the Central Government and individual State Governments notify their respective rules and the Centre announces an appointed date. Since labour sits on the Concurrent List of the Constitution, this dual notification requirement has created one of the longest implementation delays in modern Indian legislative history. This guide tracks which states have notified rules under each code, what changes employers must prepare for, and how businesses should plan their compliance transition.

What Are the 4 New Labour Codes?

Between August 2019 and September 2020, Parliament passed four labour codes that replace the entire body of central labour legislation built over seven decades. Each code consolidates multiple existing laws into a single statute with modernised provisions.

Code on Wages, 2019

The first code to be enacted, the Code on Wages received Presidential assent on 8 August 2019. It consolidates 4 laws: the Payment of Wages Act 1936, Minimum Wages Act 1948, Payment of Bonus Act 1965, and Equal Remuneration Act 1976. The code introduces a universal minimum wage applicable to all employees across all sectors, a national floor wage below which no state can set its minimum wage, and a redefined concept of wages that directly impacts salary structuring for every employer in India.

Industrial Relations Code, 2020

Enacted on 28 September 2020, this code consolidates the Trade Unions Act 1926, Industrial Employment (Standing Orders) Act 1946, and Industrial Disputes Act 1947. The most significant change is the increase in the threshold for government permission for layoffs, retrenchment, and closure from 100 to 300 workers. The code also formalises fixed-term employment, introduces a 14-day advance notice requirement for strikes and lockouts in all establishments, and creates a framework for trade union recognition through negotiating councils.

Code on Social Security, 2020

This code consolidates 9 laws including the EPF and Miscellaneous Provisions Act 1952, ESI Act 1948, Maternity Benefit Act 1961, Payment of Gratuity Act 1972, and others governing employee compensation, building worker welfare, and unorganised worker social security. The landmark provision is the extension of social security coverage to gig workers and platform workers for the first time in Indian labour law, funded by a 1-2% contribution from aggregator annual turnover.

Occupational Safety, Health and Working Conditions Code, 2020

The OSH Code consolidates 13 laws including the Factories Act 1948, Contract Labour Act 1970, Inter-State Migrant Workmen Act 1979, and various industry-specific safety statutes. It permits flexible working arrangements including 4-day work weeks, mandates annual health check-ups for workers in hazardous processes, creates a national occupational safety board, and extends coverage to establishments with 10 or more workers (with power) or 20 or more workers (without power).

Why Implementation Requires Both Central and State Rules

Labour is Entry 22, 23, and 24 on the Concurrent List (List III, Seventh Schedule) of the Indian Constitution. This means both Parliament and State Legislatures have the power to make laws on labour matters. When Parliament passes a labour code, it creates the overarching statutory framework. But the operational details, including forms, registers, return formats, local thresholds, and enforcement mechanisms, are specified through rules framed by both the Central Government (for centrally controlled establishments like mines, railways, and ports) and each State Government (for all other establishments).

This dual structure creates a coordination challenge. The Central Government published draft rules under all 4 codes between November 2020 and February 2021. But implementation cannot proceed until a critical mass of states also finalise and gazette their rules. If the codes were enforced without state rules, employers operating in states that have not notified their rules would face a legal vacuum, where the new code has repealed the old law but no operational rules exist to comply with.

The Central Government has repeatedly stated that it prefers a simultaneous nationwide rollout rather than a staggered state-by-state implementation. This preference for uniformity, while administratively sound, has been the single biggest cause of the multi-year delay.

State-Wise Implementation Status: Code on Wages, 2019

The Code on Wages was the first labour code enacted and has the widest state-level progress. Since its provisions on minimum wages and wage definition apply universally, most states prioritised framing rules under this code first. As of mid-2025, over 31 states and Union Territories have pre-published draft rules under the Code on Wages, making it the most advanced of the four codes in terms of state readiness.

State-Wise Status: Industrial Relations, Social Security, and OSH Codes

While the Code on Wages has the broadest state-level progress, the remaining three codes have seen varying degrees of state engagement. The Industrial Relations Code has faced the most political resistance due to its provisions raising the retrenchment threshold and restricting strike rights. The Social Security Code has generated significant interest due to its gig worker provisions but requires complex coordination with existing EPFO and ESIC infrastructure. The OSH Code has progressed relatively smoothly since it primarily consolidates safety provisions without controversial structural changes.

Key Changes That Will Impact Every Employer

Regardless of which state your business operates in, the new labour codes introduce structural changes that affect payroll, HR policies, employment contracts, and compliance filings. Here are the changes with the highest operational impact.

1. Wage Definition Restructuring

This is the single most impactful change. Under Section 2(y) of the Code on Wages, wages are defined to ensure that basic pay constitutes at least 50% of the total remuneration. The excluded components (employer PF contribution, conveyance, house rent allowance, overtime, commission, gratuity, bonus) cannot together exceed 50% of the gross wage. For companies where basic pay is currently 30-40% of CTC, this restructuring increases the base on which statutory contributions like PF (12% employer, 12% employee), ESI, and gratuity are calculated.

The practical effect: take-home salary decreases for employees whose basic pay is currently below 50%, and employer costs for statutory contributions increase. A company paying Rs. 50,000 monthly CTC with basic at 35% currently contributes Rs. 2,100 to employer PF. Under the new definition with basic at 50%, employer PF rises to Rs. 3,000, a 43% increase per employee per month.

2. Fixed-Term Employment Formalisation

The Industrial Relations Code formally recognises fixed-term employment across all sectors. Fixed-term employees get the same wages, hours, allowances, and statutory benefits as permanent workers doing equivalent work. The critical change: gratuity becomes payable to fixed-term workers who complete even 1 year on a pro-rata basis, eliminating the 5-year continuous service requirement that currently applies. This changes the cost calculus for project-based hiring across IT, construction, manufacturing, and consulting industries.

3. Retrenchment and Closure Threshold

The threshold for requiring government permission to retrench workers, lay off, or close an establishment increases from 100 to 300 workers under the Industrial Relations Code. This means medium-sized companies with up to 300 employees can restructure their workforce without prior government approval, a reform that industry bodies have sought for decades. Companies with more than 300 workers still need approval from the appropriate government.

4. Social Security for Gig and Platform Workers

For the first time, Indian labour law recognises gig workers (freelancers, independent contractors) and platform workers (those working through app-based aggregators) as a separate employment category eligible for social security. The Code on Social Security requires aggregators to contribute 1-2% of annual turnover to a government-administered Social Security Fund. Benefits include life and disability cover, health benefits, maternity benefits, old-age protection, and creche facilities. This provision affects every company in the ride-hailing, food delivery, logistics, and digital services sectors.

5. Flexible Working Hours and 4-Day Work Week

The OSH Code permits employers to structure the 48-hour work week flexibly. Instead of the traditional 6 days of 8 hours, employers can offer 4 days of 12 hours with 3 consecutive rest days, or 5 days of 9.6 hours. Overtime beyond 48 hours per week must be compensated at twice the ordinary rate. The daily spread-over cannot exceed 12 hours. This flexibility is particularly relevant for IT, manufacturing, and services sectors exploring compressed work weeks.

Why Some States Are Faster Than Others

The variation in state-level progress reflects political, administrative, and economic factors that help employers predict when implementation might reach their operating states.

Uttarakhand was the first state to notify rules under all 4 codes, driven by its strategy to attract manufacturing investment through a business-friendly regulatory environment. Uttar Pradesh and Madhya Pradesh followed, both aligned with the Central Government's reform agenda and eager to signal ease of doing business to investors. Karnataka completed its rules with specific provisions for the IT/ITES sector, reflecting Bengaluru's importance as a technology hub. North-eastern states completed their rules quickly partly because their smaller industrial bases made the rule-framing process simpler.

States with Moderate Progress

Gujarat and Maharashtra, India's largest industrial states, have finalised draft rules but are proceeding cautiously with gazette notification. Both states have large organised labour populations and powerful industry associations that have requested specific provisions be incorporated. Rajasthan, Haryana, and Punjab have finalised most rules but have pending consultations on specific provisions related to the Industrial Relations Code, particularly the retrenchment threshold change.

States Lagging Behind

West Bengal has the slowest progress, driven by political opposition to provisions that weaken trade union rights and make retrenchment easier. Kerala and Tamil Nadu have pre-published draft rules but have raised concerns about the Industrial Relations Code's impact on unionised workers. These states have strong trade union movements, and their governments have been vocal about protecting existing worker protections that the new codes modify.

Impact on Employers by Business Size

The labour codes apply differently based on establishment size. Understanding which thresholds apply to your business determines the scope of compliance changes you need to prepare for.

Startups and Micro Enterprises (1-9 Employees)

The lightest compliance burden. The Code on Wages applies universally regardless of size, so minimum wage and wage definition provisions affect all employers. However, PF registration is mandatory only for establishments with 20+ employees, ESI for 10+ employees, and the OSH Code's formal provisions apply to establishments with 10+ workers (with power) or 20+ workers (without power). Registered startups benefit from simplified compliance through self-certification under the Startup India programme for the first 5 years.

Small and Medium Businesses (10-299 Employees)

The biggest impact zone. Businesses in this range face full PF and ESI compliance, the wage definition restructuring, and working hours changes under the OSH Code. The good news: the raised retrenchment threshold from 100 to 300 means companies in this range gain new flexibility to restructure without government permission. The financial impact of wage restructuring across 50-299 employees runs into lakhs annually.

Large Enterprises (300+ Employees)

All provisions apply in full. Companies with 300+ workers still require government permission for layoff, retrenchment, and closure. Standing orders must be framed and certified. The wage restructuring impact at this scale often runs into crores. Large enterprises should begin salary restructuring, update HRMS and payroll systems, revise employment contracts, and model the financial impact with their CFO or financial advisory team.

How the New Wage Definition Changes Salary Structuring

The wage definition under Section 2(y) of the Code on Wages is the provision with the widest impact. Every company must restructure its CTC to comply. Here is exactly how it works.

Under the new definition, wages include all remuneration expressed in monetary terms, including basic pay, dearness allowance, and retaining allowance. The following are excluded: employer PF contribution, conveyance allowance, HRA, overtime allowance, commission, any gratuity payable, any bonus, and travel/housing concessions. However, there is a critical cap: the total of all excluded components cannot exceed 50% of the total remuneration. If excluded components exceed 50%, the excess is treated as wages.

Practically, this means the sum of basic pay + dearness allowance must be at least 50% of gross salary. Companies that currently structure CTC with basic pay at 25-40% of gross will need to increase basic pay, which automatically increases the base for PF, ESI, gratuity, and bonus calculations.

While the per-employee monthly difference may appear small, the cumulative impact across an organisation is significant. A company with 500 employees averaging Rs. 50,000 gross salary would face approximately Rs. 5.4 lakh per month or Rs. 64.8 lakh per year in additional employer PF contributions alone. When gratuity recalculation, ESI impact, and bonus computation changes are added, the total annual cost increase can exceed Rs. 1 crore for mid-sized companies.

Compliance Checklist: Preparing for Implementation

The absence of an appointed date does not mean employers should wait. Companies that prepare now will manage the transition in weeks rather than scrambling for months after notification. Here is a practical 10-step checklist.

1. Audit current salary structures across all employees to identify how many have basic pay below 50% of gross. Quantify the gap.
2. Model the financial impact of restructuring salaries to meet the 50% basic pay threshold. Calculate the additional PF, ESI, gratuity, and bonus cost per employee and in aggregate.
3. Review all employment contracts for compliance with fixed-term employment provisions, notice period requirements, and revised working hours rules.
4. Update HR policies on working hours, overtime, leave entitlement, and spread-over provisions. If considering a 4-day work week, draft the policy framework now.
5. Verify PF and ESI registrations are current and active. Companies already registered will have a smoother transition. PF registration and ESI registration should be completed before the codes take effect.
6. Assess gig and contract worker exposure. If your business uses platform workers, freelancers, or contract labour, map the social security contribution obligations under the new code.
7. Update HRMS and payroll software to support the new wage definition, restructured salary components, and revised statutory contribution calculations.
8. Prepare revised offer letter and appointment order templates that comply with fixed-term employment provisions and the new wage definition.
9. Train HR and payroll teams on the changes. The transition period after notification will be short, and teams must be ready to execute immediately.
10. Engage compliance professionals for a comprehensive readiness assessment. A compliance services provider can audit your current setup and deliver a gap report with specific action items.

Frequently Misunderstood Provisions

Several provisions of the new labour codes are widely misunderstood by employers and employees. Clarifying these misconceptions now prevents costly errors during the transition.

The 4-Day Work Week Is Not Mandatory

The OSH Code permits but does not mandate a 4-day work week. It is an option available to employers who wish to offer compressed schedules. The 48-hour weekly cap remains. Employers choosing this option must provide 3 consecutive rest days and cannot require daily work beyond 12 hours including overtime. The provision gives flexibility; it does not force any employer to change their current schedule.

Basic Pay at 50% Does Not Reduce CTC

The wage definition change restructures how CTC is allocated, not the total CTC itself. Gross salary remains the same. What changes is the proportion allocated to basic pay versus allowances. The financial impact comes from the increased statutory contribution base, not from a reduction in total compensation. Employers can offset part of the increased PF cost by reducing other discretionary allowances within the 50% cap.

Gratuity After 1 Year Applies Only to Fixed-Term Workers

The relaxation of the 5-year gratuity threshold applies only to fixed-term employees, not to all employees. Regular (permanent) employees still need to complete 5 years of continuous service to qualify for gratuity. Fixed-term workers qualify for pro-rata gratuity after completing 1 year because their contracts have a defined end date that makes 5-year continuous service structurally impossible.

Social Security for Gig Workers Does Not Make Them Employees

The Code on Social Security creates a separate category for gig and platform workers. Extending social security coverage does not reclassify them as employees. Aggregators contribute to the social security fund based on turnover, not as employers making PF/ESI contributions for individual workers. The employment relationship and contractual terms remain distinct from employer-employee relationships.

What Happens When the Codes Are Finally Implemented

When the Central Government announces the appointed date, all 29 existing labour laws are repealed simultaneously. The Payment of Wages Act, Minimum Wages Act, Factories Act, Industrial Disputes Act, EPF Act, ESI Act, and 23 other statutes cease to exist, replaced entirely by the four new codes. Based on precedent from the GST transition, a window of 90-180 days is expected for employers to align with the new provisions during which existing compliances would continue to be recognised.

The most tangible administrative benefit: unified registration replaces multiple registrations. Instead of maintaining separate registrations under the Factories Act, Shops and Establishment Act, Contract Labour Act, EPF Act, and ESI Act, employers will register once on the Shram Suvidha Portal and receive a single Unified Registration Number (URN). Filing consolidated returns under 4 codes through a single digital platform replaces the current 50+ forms under 29 statutes, reducing total compliance forms to approximately 12.

Industry consensus points to a possible implementation window in late 2025 or 2026, but this remains speculative. The likely sequence: remaining states gazette-notify rules, a final tripartite stakeholder consultation with employer associations and trade unions, gazette notification of the appointed date with 3-6 months notice, and then enforcement begins. The government has consistently prioritised readiness over speed, and the political sensitivity of labour reform adds another variable to the timeline.

Industry-Specific Impact Assessment

IT and Technology Sector

The IT sector faces significant salary restructuring costs because most IT companies maintain basic pay at 30-40% of CTC. The 50% basic pay requirement will increase PF contributions substantially across large workforces. However, the sector benefits from the 4-day work week option and flexible working hours provisions. Karnataka has specifically included IT/ITES sector provisions in its state rules.

Manufacturing Sector

Manufacturers benefit most from the raised retrenchment threshold (100 to 300 workers), which gives medium-sized factories more flexibility in workforce management. The OSH Code consolidates factory safety requirements under a single framework. States like Gujarat, Maharashtra, Tamil Nadu, and Uttar Pradesh, which host the largest manufacturing bases, have been deliberate in their rule-framing to balance employer flexibility with worker safety.

Gig Economy and Platform Businesses

Ride-hailing, food delivery, logistics, e-commerce, and digital services platforms face the entirely new obligation of contributing 1-2% of annual turnover to the Social Security Fund. For a company with Rs. 500 crore annual turnover, this translates to Rs. 5-10 crore annually. Companies in this space should model the financial impact and build administrative infrastructure for worker identification and contribution tracking.

Construction and Real Estate

The construction sector benefits from the consolidation of the Building and Other Construction Workers Act into the OSH Code. Inter-state migrant worker provisions are strengthened, requiring employers to provide displacement allowance, journey allowance, and suitable working conditions.

Timeline: What to Expect Next

While no official timeline exists, these are the steps employers should watch for as indicators that implementation is approaching.

1. Remaining states gazette-notify rules. Gujarat, Maharashtra, Rajasthan, Tamil Nadu, and other large industrial states complete final gazette notifications. This is the current bottleneck.
2. Central Government conducts final stakeholder consultation. A tripartite meeting with employer associations (CII, FICCI, ASSOCHAM) and trade unions (BMS, INTUC, AITUC) to finalise the implementation timeline.
3. Appointed date announced via gazette notification. The Central Government publishes the appointed date, typically giving 3-6 months before enforcement begins.
4. Transition period. Employers restructure salaries, update systems, revise contracts, and register on the unified portal.

Summary

The 4 new labour codes represent India's most ambitious labour reform in seven decades, replacing 29 laws with a unified framework. Over 31 states have pre-published draft rules, with states like Uttarakhand, Uttar Pradesh, Madhya Pradesh, Karnataka, and Bihar leading the way by notifying rules under all 4 codes. Gujarat, Maharashtra, and other large industrial states have finalised drafts with gazette notification pending. Tamil Nadu, West Bengal, and Kerala remain at the draft stage, slowed by political concerns over trade union and retrenchment provisions.

For employers, the most immediate action items are salary structure audits (50% basic pay requirement), financial impact modelling (increased PF, ESI, and gratuity costs), employment contract updates (fixed-term employment and working hours), and HRMS upgrades. The absence of an appointed date is not a reason to delay preparation. When implementation happens, the transition window will be short, and businesses that are ready will have a significant operational advantage over those that are not.

Whether you are a startup with 5 employees or an established company with 500, the labour codes will change how you structure compensation, manage workforce flexibility, and file compliance returns. IncorpX provides end-to-end support including labour code readiness audits, salary restructuring advisory, PF and ESI registration, Virtual CFO services for financial impact modelling, and employment contract reviews. From company registration with compliant salary structures to ongoing compliance management, we ensure your business is ready for implementation regardless of when the appointed date is announced.