On 30-12-2025, the Ministry of Labour and Employment notified the detailed set of FAQs on the Labour Codes, crucial for clarifying provisions, compliance requirements, and dispelling myths, helping employers, employees, and professionals navigate the changes introduced by the Codes.
The Central Government implemented the Code on Wages, 2019, Industrial Relations Code, 2020, Occupational Safety, Health and Working Conditions Code, 2020, and Social Security Code, 2020, on 21-11-20251. The Four Labour Codes aim to simplify, consolidate, and modernize labour laws, ensure uniformity, strengthen social security, and promote ease of doing business.
Read the Complete Guide to Four Labour Codes.
Below is the list of Frequently asked questions (FAQs) on:
Labour Codes
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Which rules will be applicable during the transition period?
As per the provisions of Section 6 of General Clauses Act, 1897, old rules will remain in force till final notification of new rules under the Code, to the extent these are in line with Codes.
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Definition of wages and the components it would cover.
The definition of “Wages” covers:
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All remuneration whether by way of salary, allowances or otherwise. These include Basic pay, Dearness allowance and Retaining allowance, if any.
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If the allowances (except gratuity and retrenchment compensation) exceed 50% of all remuneration, the excess amount shall be added back to wages.
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Performance based incentives, Employee Stock Option Plans (ESOPs), variable part of the component or reimbursement-based payments to the employee shall not be part of the wages.
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What is the 50% rule for allowances?
If the allowances and benefits together (except gratuity and retrenchment compensation) exceed 50% of the remuneration, the excess amount shall be added back to wages.
Such added amount shall be treated as wages for statutory purposes.
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Whether Gratuity calculation will be applicable prospectively or retrospectively.
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How is gratuity calculated?
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For every completed year of service or part thereof more than six months:
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15 days’ wages per year (or such number as notified by Central Government) based on the rate of wages last drawn.
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Special cases:
○ Piece-rated employees: Daily wages calculated as average of total wages for the three months preceding termination (excluding overtime).
○ Seasonal employees: 7 days’ wages per season
○ Fixed-term employment or deceased employees: Gratuity paid on pro-rata basis.
○ The maximum gratuity is as notified by the Central Government which is currently ₹ 20 lakhs.
○ For employees re-employed after disablement:
⮚ Wages for the period preceding his disablement shall be taken to be the wage received by him during that period.
⮚ Wages for the period after his disablement shall be taken to be the wages as so reduced.
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When gratuity is payable to an employee?
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On termination
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On superannuation (retirement due to age)
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On resignation
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On death or disablement due to accident or disease
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On expiration of a fixed-term employment contract
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On any other event notified by the Central Government
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Whether Leave Encashment be part of allowances?
As mentioned in Section 2(y) of Code on Wages, 2019, leave encashment is not a part of allowances.
Gratuity will be applicable w.e.f. 21-11-2025 i.e. date of enforcement of the Code2.
Gratuity shall be payable on following events:
Codes on Wages, 2019
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Will the new concept of floor wage reduce the minimum wages fixed by the State?
No, Floor Wage is a baseline. Where the minimum rates of wages fixed by the State Government earlier is more than the floor wage, the State Government shall not reduce such minimum rates of wages fixed by it earlier.
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Will the revised definition of wages under the Code, 2019 reduce employee wages?
No. The definition brings transparency and uniformity. Allowances exceeding a fixed percentage as notified by central government are added back to wages, increasing the base for PF, gratuity, and bonus, benefiting workers. It will strengthen social security of employees.
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Is a daily wage worker not eligible for bonus?
Bonus is payable to every employee who has worked for at least thirty days in an accounting year as per the wage ceiling prescribed by the appropriate government.
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Will the fixation of minimum wages become arbitrary under Central Government control?
No. The Central as well as the State Governments will fix minimum wages within their respective jurisdictions. They must set these wages above the floor wage and after consulting workers and employers’ representatives. So, the process is fair, balanced, and not arbitrary
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Does the Code on Wages allow employers to make too many deductions from workers’ wages?
No. The Code caps all deductions at 50% of wages, uniform and protective compared to earlier 75% for cooperative deductions. The deduction is restricted to 50% of wages.
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Is it true that working hours been extended in a way that deprives workers of overtime?
No. Flexibility in working hours will not curtail the minimum wage, and employees working beyond normal hours are entitled to the overtime rate which shall not be less than twice the normal rate of wages.
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Is only permanent employee covered under the Wages Code?
No. The Code covers all employees, including full-time, part-time, temporary, casual and contractual workers.
Industrial Relations Code, 2020
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Is it true that Fixed-Term Employment (FTE) is exploitative?
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Whether the new provisions under IR Code will allow the employers with less than 300 workers to fire without restriction?
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Whether IR Code bans all strikes?
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Is it true that Labour Courts are being abolished?
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Whether penalty provisions for employer violation in IR Code are removed?
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Is it true that the “Journalists” are freelancers and therefore not “employees”?
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Is it true that Industry closure no longer needs approval?
No. Fixed Term Employees (FTE) will be eligible for all benefits (EPF, ESI, flexible working hours, timely and minimum wages) equal to permanent employees. They will also be eligible for Gratuity on completion of one year of service. This will reduce contractualisation. FTE will get appointment letter directly from the employer enhancing their pride. This will also increase their employability as freshers can gain experience in a short span of time and enhance specialized skills.
No. The requirement for mandatory one month notice and retrenchment compensation for every completed year of service continue. Prior permission will be required for retrenchment by establishments having 300 or more workers. Also, additional provision of re-skilling fund for retrenched workers to enhance their skills to get better job perspective has been introduced for the welfare of the worker.
No. The Industrial Relations (IR) Code, 2020 does not ban strikes. Right to strike remains intact under IR Code with mandatory 14 days’ notice period before going on strike.
The Labour Courts and Industrial Tribunals will be replaced with a simplified two-tier tribunal system reducing delays and multiplicity of forums. Instead of one member the IR Code has introduced two member Tribunals for speedy delivery of justice.
No. Penal provisions are not compromised instead penalties have been substantially increased and made commensurate with the offences.
“Working Journalist” employed in a newspaper/agency have now been included under the definition of worker under the IR Code.
Lay-off/Retrenchment/Closure have been well regulated under IR Code. Industries having 300 workers on any day of previous year will need prior permission from the Government. All benefits such as retrenchment compensation, priority in re employment, etc. have been kept under IR Code.
Occupational Safety and Health and Working Conditions Code, 2020
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Whether raising the threshold for definition of “factory” (from 10 workers with power / 20 without power to 20 workers with power / 40 without power) will exclude workers from safety and welfare protections?
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Does increased licensing threshold for contract labour from 20 to 50 will deprive contract workers of protections?
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Will allowing flexibility in working hours up to 12 hours per day will exploit workers?
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Whether it is not unsafe to allow women to work at night?
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What is the minimum criterion in terms of number of days for a worker to be eligible for annual leave with wages as per the provisions of OSH&WC Code, 2020?
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Does OSH Code provide any specific welfare facilities for transgender workers?
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Is it true that duties of employers are towards regular workers only and do not cover contract workers and inter-state migrant worker (ISMW)?
No. The rights of workers regarding health, safety and welfare would be protected as these provisions are applicable for the establishments having 10 or more employees.
No. All establishments having 10 or more employees must comply with safety and welfare measures. The increases licensing threshold is for administrative ease and does not affect workers’ entitlements/protections.
No. The Code prescribes 8 hours per day and 48 hours per week as standard, with some flexibility to extend daily hours with the consent of workers on payment of overtime, at twice the rate wages.
No. The Code gives women’s right to work in any establishment and night shift with the safeguard of adequate safety, transport, and security arrangements, thus promoting gender equality with safeguards. Moreover, consent of women worker is mandatory to work in night.
A worker should have worked for 180 or more days in a calendar year to be eligible for annual leave with wages.
Yes. The Code recognizes first time the transgender workers and mandates separate bathing, toilet, restroom etc facilities for them ensuring dignity, privacy and equal access at the workplace.
No. The Code does not distinguish regular and contract workers or ISMW. The Code extends benefits to all workers, including contract and inter-state migrant workers.