Why definitions matter under the new Labour Codes
The four Labour Codes came into force on 21 November 2025, replacing 29 central labour laws. The central rules under these Codes were notified on 8 May 2026. Many employers are focusing on the big changes like wage limits, leave and gratuity, but most of these changes start with the definitions.
Who counts as a worker, what counts as wages and which establishments are covered decide your PF, ESI, gratuity, bonus and overtime costs. A small change in a definition can change your salary structure and compliance cost for every employee.
This article explains the key definitions that have changed, what they mean in practice and what employers should check now.
1 Wages: the 50% rule
This is the most important change for employers. Under the new Codes, wages mean Basic Pay, Dearness Allowance (DA) and Retaining Allowance.
- Bonus
- House Rent Allowance (HRA)
- Conveyance & other allowances
- Employer contribution to PF & pension
- Overtime allowance
- Gratuity
However, if these excluded items together are more than 50% of total remuneration, the extra amount is added back to wages. The new wage figure is then used to calculate PF, ESI, bonus, gratuity and maternity benefit.
An employee’s monthly remuneration is Rs 50,000. Basic and DA are Rs 20,000, and allowances are Rs 30,000.
Allowances account for 60% of total compensation, which is 10% above the 50% ceiling limit. As a result, Rs 5,000 is added back, and the wage base for statutory benefit calculation becomes Rs 25,000 instead of Rs 20,000.
Companies that kept basic pay low and allowances high will see higher PF and gratuity costs. Salary structures should be reviewed immediately to check this impact.
2 Worker
A worker now excludes persons working mainly in a managerial or administrative role. It also excludes persons in a supervisory role who earn above Rs 18,000 per month.
This matters because many protections, such as working hours, overtime and dispute provisions, apply only to workers. A supervisor earning Rs 15,000 per month is still a worker and gets these statutory protections.
3 Inter-state migrant worker
The definition now covers two groups earning less than Rs 18,000 per month:
- Workers who come on their own from another state and get employed
- Workers brought from another state by a contractor
Earlier, mainly workers brought in by a contractor were covered. Now employers who directly hire workers from other states also have duties, such as maintaining records and providing benefits like a journey allowance.
4 Contract worker
The definition of contract worker is now wider. It includes inter-state migrant workers and out-workers, who are people doing work for the establishment from outside its premises.
Principal employers should check whether any vendor or job-work arrangement now falls under contract labour, as this brings registration and wage responsibility.
5 Establishment
An establishment is a place where any business, trade, manufacturing or occupation is carried on with 10 or more workers. Offices, shops, warehouses and service units can all be covered once they cross this number.
Employers with multiple small locations should count workers at each site, as coverage under the OSH Code depends on this headcount threshold.
6 Appropriate government
The appropriate government decides which set of rules applies to you, central or state. For contractors working in establishments under the Central Government, compliance will follow the Central Labour Rules, even if the contractor is registered in a state.
This is particularly important for contractors serving central PSUs, railways, ports, mines, banks and similar establishments.
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