Decoding India's New Labour Codes for SMEs

Aarthi

Welcome back to The People Stack. Today we’re doing a full deep dive.Not the quick version. This is the full breakdown of the New Labour Codes. If you’re an SME founder or HR manager… you’re going to want to save this episode.

Raj

And trust me, you’ll want to listen to this one end-to-end. We see how many companies are unprepared — sometimes not because they don’t care, but because the rules have been complicated for so long.

Aarthi

And that’s exactly why the government merged 29 old labour laws into four Codes.Today we explain what changes, why it matters, and how SMEs can prepare without panic.

Aarthi

Raj, before we get into the rules, let’s talk about why this overhaul was necessary.

Raj

One word: fragmentation.India’s labour system evolved over 70 years, and every decade someone added a new Act, new definitions, new registers. Examples:PF had its own Act. ESI had its own. Payment of wages had another. Bonus, minimum wages — all separate. Different thresholds, different formats, different interpretations.

Aarthi

And none of these laws were designed for today’s workforce — gig workers, platform workers, remote teams, digital payroll…

Raj

Exactly.The new Codes are designed for 2025 and beyond — not 1970.

Aarthi

So can you walk us through the new codes

Raj

Yep, Here’s the quick, clean structure:

Raj

Code on Wages which covers - Wages, minimum wage, payment timelines, equal pay, 50 percent rule.

Raj

Industrial Relations Code which covers Strikes, layoffs, fixed-term employment, grievance committees.

Raj

Social Security Code which covers EPF, ESI, gratuity, maternity benefits, gig workers, commuting accidents.

Raj

O S H & Working Conditions Code which covers Safety, workplace facilities, registers, migrant workers, night shifts etc.

Aarthi

Perfect. Now let’s go section by section with real SME examples.

Raj

The 50 Percent Wages Rule — The Big One

Raj

This rule will change salary structures permanently. It says:Allowances cannot exceed 50 percent of total compensation.Meaning:Basic must be at least 50 percent Allowances can be max 50 percentLet’s apply this to a real SME case.

Raj

Example Logistics Company (40 employees)Old structure:Basic: Rupees 9,000 Allowances: Rupees 16,000 Total: Rupees 25,000 Under new rules:Basic must be Rupees 12,500 Allowances max Rupees 12,500

Aarthi

Meaning PF and gratuity base increases by over 35 percent.

Raj

Exactly. That’s why SMEs need to audit salary structures now.

Aarthi

Two-Day Final Settlement - what is that about ?

Raj

Resignation, termination, retirement — everything must be settled within two working days. What SMEs usually do:Wait for attendance to close, Wait for payroll cycle, Wait for CFO approval, Wait for accounts

Aarthi

This won’t work in future now

Raj

No !!! Companies will need a workflow — not a manual chase-down. this is where digital platforms like o f f r d will help companies

Aarthi

What about the National Floor Wage clause ? This one is big right ?

Raj

For the first time, India gets a centrally enforced floor wage. This stops states from setting extremely low minimum wages.For SMEs in Tier 3 and 4 cities, this will impact cost structures.

Aarthi

I understand now there are Stronger Penalties

Raj

Yes. Employees now have 3 years to file wage or deduction claims. Penalties increased significantly.

Aarthi

So sloppy payroll just became expensive payroll.

Raj

This is a massive step.Fixed-term employees get: PF, ESI, Gratuity (pro-rata even if less than 5 years)This gives SMEs flexibility without stripping worker benefits.

Aarthi

What about the Strikes, Mass Leave & 14-Day Notice clause

Raj

Yes. Mass casual leave counts as a strike if 50 percent workers do it.

Raj

Also:All industries now require a 14-day strike or lockout notice.

Aarthi

So no surprise shutdowns.

Aarthi

How does the Grievance Redressal Committees change under the new policy

Raj

Even small offices now need a committee with representation — including women. Threshold goes from 50 employees to 20 employees.

Aarthi

Layoff/Retranchement Threshold Increased i understand

Raj

yes this changed - Old rule: permission needed if 100+ employees under New rule: 300+ employees. This gives mid-sized companies breathing room.

Aarthi

how does Universal EPF Coverage change

Raj

Every establishment with 20+ employees is covered. No exceptions for industry or location.

Raj

It says ESI is now PAN-India.Every district. No notified areas.

Aarthi

This alone changes eligibility for thousands of SMEs.

Aarthi

The next one is a big change for everyone . Now Gig and Platform Workers are covered is what i understand

Raj

First time in Indian law:Delivery partners, Drivers, Freelancers, App-based workers. All get social security coverage.Fund contributions come from aggregators, states, and central government.

Raj

One more important thing - It expands accident coverage from home to workplace.

Aarthi

That’s huge. No more technical loopholes.

Aarthi

Alright Raj, let’s get into the O S H Code — safety, workplace conditions, all of that. This part is usually ignored by SMEs but affects them directly.

Raj

Yes, and honestly, this is where most SMEs are least prepared. Let’s start with the night shift rules for women.

Raj

Under the new Code, women can work night shifts — beyond 7 PM and before 6 AM — as long as the employer provides proper safeguards.

Aarthi

Safeguards meaning transport, security, consent, things like that?

Raj

Exactly. And this impacts sectors like retail, logistics, hospitality, and IT support.Because many of them already have women working late, but without formal safeguards.

Aarthi

And now the rules make it explicit. No ambiguity.

Aarthi

Let’s talk about the crèche requirements. This one surprised me.

Raj

Yes — any establishment with 50 or more employees must provide crèche facilities.

Aarthi

And the key change here?

Raj

It’s gender-neutral.Earlier, crèche rules were tied to “number of women employees.”Now it applies to all employees — because parenting is not gender-specific.

Aarthi

This is a huge shift in mindset and compliance.

Aarthi

What about migrant workers? There were major updates there too.

Raj

Yes. The OSH Code gives migrant workers a lot more security. Employers must now provide:To-and-fro travel allowances Portability of PDS benefits Clear recognition of self-migrated workers Debt-related protections when employment ends

Aarthi

This is a major win for India’s mobile workforce. And many SMEs, especially in manufacturing and construction, need to understand this carefully.

Raj

Absolutely. Even small companies that employ five or six migrant workers will need to comply.

Aarthi

Alright Raj, let’s get practical. If an SME founder is listening right now and thinking “Okay, what on earth do I do next?” — where should they start?

Raj

I’d break it down into ten clear action steps. And none of them need panic — just planning.

Aarthi

Let’s go through them one by one.

Raj

Sure. 1. Salary structure audit - Most SMEs will fail the 50 percent wages rule right now. This needs to be checked immediately.

Aarthi

This is the biggest financial impact area, right?

Raj

Yes. And the earlier they evaluate it, the smoother the transition.

Raj

2. Redesign exit workflows- Because of the two-day final settlement requirement.

Raj

3. Re-evaluate PF & ESI applicability

Aarthi

Especially because ESI is now everywhere.

Raj

Correct. Many companies who never thought they were in scope… are suddenly in scope. 4. Update documents Offer letters, HR policy, leave rules, OT rules — all must match the new definitions. 5. Move to digital registers

Aarthi

This one is scary for companies still using Excel for everything.

Raj

Yes. But the good news is — the new Codes require fewer registers, just digital.

Raj

6. Recalculate overtime correctly - The Codes make the OT rate explicit. Many SMEs currently miscalculate it.

Raj

7. Revisit bonus eligibility

Aarthi

Because wage ceilings are now flexible, right?

Raj

Exactly. And governments can change them dynamically.

Raj

8. Review women-friendly and inclusive workplace policies - With night shift rules, crèche rules, and gender-neutral requirements — SMEs must update policies.

Raj

9. Build grievance committees

Aarthi

Because the threshold is now 20 employees, not 50.

Raj

Yes. More SMEs must comply.

Raj

10. Train HR teams - This is honestly the most ignored part. If the HR team doesn’t understand the Codes, they can’t implement anything.

Aarthi

Perfect. If SMEs can get these ten things right, they’ll be better prepared than 90 percent of companies out there.

Aarthi

Raj, we should also talk about what O f f r d already supports — because a lot of users ask us this directly.

Raj

Yes, and the good news is — Offrd already handles many of the fundamentals.

Aarthi

Let’s walk through them.

Raj

Sure.Offer letters with updated structures A payroll structure builder that helps align with the 50 percent rule , Employee Registers, Payroll registers for monthly compliance, Exit documentation for smoother F&F, Basic compliance tracking so people don’t miss deadlines

Aarthi

And in terms of the new additional Labour Codes?

Raj

We’re already evaluating them internally. As government notifications firm up and finer rules become clearer, we’ll roll out updates through 2026.

Aarthi

This was a long session, but the Labour Codes demand it. If you’re running a business, this is one of the biggest structural changes in decades.

Raj

Yes. If companies start preparing now, the Labour Codes won’t feel intimidating in 2026.It’s just about knowing what’s coming and updating processes one step at a time.

Aarthi

And honestly, the intention behind the Codes is good — better structure, cleaner compliance, more protection for workers, and less ambiguity for employers.

Raj

Exactly. It’s a reset. A big one, but a healthy one.

Aarthi

Before we wrap up, we should say this clearly — everything we discussed today is based on the information available right now. A lot of it comes directly from government documents.

Raj

Yes, and while we’ve explained it in simple language, this episode isn’t legal advice.The final implementation may change depending on state notifications and government clarifications.

Aarthi

So if you’re making payroll, compliance, or policy decisions, please talk to a qualified labour law expert. Every company’s situation is different.

Aarthi

Alright, that’s our deep dive for today. Share this episode with your HR team, your founder, your CFO — anyone who needs to get ahead of the Labour Codes.

Raj

And if you’re on O f f r d dot c o, stay tuned. We’ll keep adding updates as the Codes evolve.

Aarthi

Thanks for listening. We’ll see you in the next episode of The People Stack.