India’s Labour Codes consolidate 29 central labour laws into four unified statutes to simplify compliance, strengthen enforcement, expand social security, improve workplace safety, and promote industrial harmony. The reforms encourage formalisation of employment, reduce regulatory complexity, and create a transparent, growth oriented labour law framework balancing worker welfare and economic efficiency. To help clarify practical aspects of these reforms, as per the FAQ issued by Ministry of Labour and Employment, the following doubts have been clarified.

What Are India’s Labour Codes?

India’s Labour Codes represent a landmark labour law reform framework designed to modernise employment regulation. The four Codes collectively aim to:

• Harmonise wage definitions and statutory calculations

• Improve industrial relations and dispute resolution

• Expand social security and gratuity coverage

• Strengthen occupational safety, health, and working conditions

These reforms support ease of doing business, worker protection, and labour market formalisation.

Key Labour Codes at a Glance

• Code on Wages, 2019 – Uniform wage definition and payment norms

• Industrial Relations Code, 2020 – Trade unions, standing orders, and dispute resolution

• Code on Social Security, 2020 – Social insurance, gratuity, and welfare benefits

• Occupational Safety, Health and Working Conditions Code, 2020 (OSH & WC Code) – Workplace safety, contract labour, and migrant workers

Frequently Asked Questions (FAQs)

A. Transition & Applicability

Q1. Which rules apply during the transition period?

Answer:
Under Section 6 of the General Clauses Act, 1897, existing rules continue until new rules are notified under the Labour Codes, to the extent they are consistent with the Codes.

During the transition period, existing labour rules remain applicable until new rules are officially notified under the Labour Codes, provided they are consistent with the provisions of the respective Codes.

B. Definition of Wages

Q2. What does the term “wages” mean?

Answer:
Wages include:

• All remuneration payable as salary or allowance

• Basic Pay, Dearness Allowance (DA), and Retaining Allowance

If allowances (other than Basic Pay, DA, and Retaining Allowance) exceed 50% of total remuneration, the excess is added back to wages.

Q3. What components are covered under wages?

Included:

• Basic Pay

• Dearness Allowance

• Retaining Allowance

Excluded:

• Performance-based incentives

• ESOPs

• Variable pay

• Reimbursements

If allowances (excluding gratuity and retrenchment compensation) exceed 50%, the excess is treated as wages.

Q4. What is the 50% allowance rule?

If total allowances exceed 50% of all remuneration, the excess amount:

• Is added back to wages

• Is considered for statutory contributions and benefits

Q5. Is leave encashment part of allowances?

Answer:
No. Leave encashment is not included in allowances as per Section 2(y) of the Code on Wages, 2019.

Q6. Does this wage definition apply across all Labour Codes?

Answer:
Yes. A single, uniform definition of wages applies across all four Labour Codes for statutory calculations.

Q7. Illustration of the 50% rule

Example:

• Total remuneration: ₹76,000

• Basic Pay + DA: ₹20,000

• Allowances: ₹40,000

• Other components (gratuity/retrenchment): ₹16,000

• Maximum allowance permitted (50%): ₹38,000

• Excess allowance: ₹2,000

➡ ₹2,000 is added back to wages
➡ Revised wages for compliance: ₹22,000

C. Gratuity Provisions

Q8. Is gratuity applicable prospectively or retrospectively?

Answer:
Gratuity applies prospectively from 21 November 2025, the date of enforcement of the Code.

Q9. How does this affect companies following a December year-end?

Answer:
Gratuity applies from 21 November 2025. Accounting provisions may be made as per applicable accounting standards.

Q10. When is gratuity payable?

Gratuity is payable on:

• Termination

• Superannuation

• Resignation

• Death or disablement

• Expiry of fixed-term employment

• Other notified events

Q11. Are there special gratuity provisions?

Yes. Five years of service is not required in cases of:

• Death

• Disablement

• Expiry of fixed-term employment

• Other notified events

For minors, gratuity is deposited with a competent authority and invested until majority.

Q12. How is gratuity calculated?

• 15 days’ wages per completed year of service

• Piece-rated: Average of last 3 months’ wages

• Seasonal: 7 days’ wages per season

• Fixed-term/deceased: Pro-rata basis

Maximum gratuity: ₹20 lakhs (as currently notified)

Q13. Does gratuity override better agreements?

Answer:
No. Employees retain the right to better gratuity benefits under awards, agreements, or contracts.

D. OSH & WC Code Clarifications

Q14. Are supervisors earning ₹18,000+ considered workers?

Answer:
No. Supervisory employees earning more than ₹18,000 (or notified amount) are excluded from the definition of “worker”.

Q15. What are core and non-core activities?

Answer:
The OSH & WC Code clearly defines core activities. Contract labour may be engaged for:

• Intermittent work

• Sudden increase in workload

• Time-bound projects

Q16. Is journey allowance payable to inter-state migrant workers (ISMW)?

Answer:
Yes. Employers must pay to-and-fro journey allowance once a year from the worker’s native place to the place of employment.

Q17. How is ESI coverage governed until final rules?

Answer:
The definition of wage has come into force with notification of the Code w.e.f. 21st Nov, 2025.