Labour Codes 2025 Decoded

Your Obligations as an Employer Under the New Labour Codes

Applicable from 21 Nov 2025 6 min read Verified by Comply4HR Editorial Team

Why employer obligations matter now

The four Labour Codes came into force on 21 November 2025, and the central rules were notified on 8 May 2026. Along with new definitions, the Codes set clear duties for employers on paying wages, deductions, appointment letters, health check-ups, safety and contract labour.

Many of these duties come with fixed statutory timelines. Missing them can lead to compounding financial penalties, inspection notices and legal claims from employees.

This guide breaks down every key employer obligation, clarifies legal nuances, and provides an actionable operational checklist for your HR and payroll teams.

1 Payment of wages on time

Under Section 17 of the Code on Wages, 2019, wages must be disbursed within strict statutory time limits determined by the wage cycle:

Statutory Wage Payment Deadlines
Daily Wages: End of shift Weekly Wages: Last working day of the week Fortnightly Wages: Before end of 2nd day after fortnight Monthly Wages: Before 7th day of following month

Key Legal Shift: Under the erstwhile Payment of Wages Act, 1936, these timelines applied primarily to employees earning below a statutory wage threshold (last revised to Rs 24,000/month) and allowed up to 10 days for establishments with 1,000+ workers. Under the new Code, the 7-day monthly limit applies universally to every single employee across the organization, regardless of salary level or total workforce headcount.

Note on payroll cycles: The 7-day rule applies exclusively to monthly salaries; establishments paying weekly or fortnightly wages operate under much shorter settlement windows.

2 Limit on deductions: The 50% ceiling

Under Section 18(3) of the Code on Wages, total authorized deductions made from an employee’s wages in any given wage period cannot exceed 50% of total wages.

Deductions subject to the 50% statutory cap include:
  • Recovery of salary advances & loans
  • Deductions for absence from duty
  • Recovery of damages or loss of goods
  • House accommodation & amenities
  • Statutory fines & penalties
  • PF, ESI & cooperative society dues

Crucial Context: "Wages" here refers to the unified definition under the Code: Basic Pay, DA, and Retaining Allowance, with any allowances exceeding 50% of total remuneration added back.

If an employee takes a substantial company loan or salary advance, the employer cannot deduct the entire sum at once if it causes total deductions to cross 50% of that month’s wage base. Employers must structure recoveries into smaller monthly instalments to remain compliant.

3 Full and final settlement within 2 working days

Under Section 17(2) of the Code on Wages, when an employee’s service ends, all wages due must be disbursed within two working days.

This mandatory 2-day timeline is triggered when an employee:

  • Resigns from service (voluntary exit)
  • Is dismissed or removed from employment
  • Is retrenched
  • Becomes unemployed due to closure of the establishment

Impact on Enterprise Offboarding: The explicit inclusion of resignation is one of the biggest operational shake-ups in the Labour Codes. Standard enterprise HR practices taking 30 to 60 days to complete departmental asset sign-offs and issue FnF settlements are no longer permissible for wage components.

Statutory Nuance on Benefits: The 2-working-day mandate specifically governs wages due (including earned salary and encashable leaves where defined as wages). Other statutory terminal benefits follow their respective statutory timelines—for example, Gratuity must be paid within 30 days of becoming due under Section 53 of the Code on Social Security, 2020.

4 Mandatory appointment letters

Under Section 6(1)(f) of the Occupational Safety, Health and Working Conditions (OSH) Code, 2020, no employee can be engaged in any establishment without the employer issuing a formal appointment letter in the prescribed format.

Mandatory disclosures in the appointment letter:
  • Job title & official designation
  • Nature of employment (regular, fixed-term)
  • Formal date of joining & location
  • Itemized wage structure & allowances
  • Applicable social security benefits
  • Statutory maternity benefits notice (women)

Immediate Action Required: While the law provided a 3-month transition window from the effective date to issue compliant appointment letters to existing personnel, that transitional period has elapsed. Any establishment that has not yet regularized formal appointment letters for all staff members must do so immediately.

5 Annual health check-ups

Under Section 6(1)(c) of the OSH Code, employers are required to arrange free-of-cost annual health examinations or clinical tests for designated categories of employees.

Understanding the division of authority is essential here:

  • Under Central OSH Rules: Employers in dock work, mines, and building or other construction work must provide a free annual medical examination for all employees aged 40 and above.
  • State Rule Expansions: Because state governments are the "appropriate government" for standard factories and commercial establishments, several states (including Maharashtra's draft rules) have extended this mandate to cover every worker aged 40 and above across all factories and establishments.
  • Hazardous Processes: Any establishment carrying on hazardous operations must arrange periodic medical examinations for workers regardless of their age.

Employers must review the state-specific rules applicable to each operating location to determine the precise medical check-up requirements for their sector.

6 Safety officers & workplace safety

Under Section 22 of the OSH Code, establishments exceeding specific workforce headcount thresholds are legally required to appoint qualified Safety Officers:

Mandatory Safety Officer Thresholds
General Factories: 500+ workers Hazardous Process Factories: 250+ workers Building & Construction: 250+ workers Mines: 100+ workers

As the workforce expands beyond these minimum floors, the statutory ratio mandates the appointment of additional safety officers to maintain appropriate safety oversight across shifts and working locations.

7 Contract labour wages & contractor obligations

The OSH Code establishes strict dual liability mechanisms under Section 55 to guarantee wage protection for contract workers:

  • Contractor’s Primary Obligation: The contractor is primarily responsible for disbursing wages within the prescribed wage cycle (within 7 days of the wage period).
  • Principal Employer’s Fallback Liability: If the contractor defaults or makes short payment within the statutory period, the principal employer is legally obligated to pay the full wages or unpaid balance within 15 days (as specified under the Central Rules).
  • Statutory Right of Recovery: The principal employer has the unchallengeable statutory right to recover any wage amounts paid on behalf of the contractor by deducting from invoices, drawing against the contractor’s security deposit, or recovering the sum as a debt.
  • Experience Certificate on Demand: Every contractor is statutorily required to furnish an official Service / Experience Certificate (Form XIV) to contract workers upon termination of their engagement.

Employer Action Checklist

1 Align salary disbursement dates with the statutory time limits for daily, weekly, fortnightly, and monthly wage periods.
2 Audit all monthly payroll runs to ensure cumulative deductions never breach 50% of the newly defined statutory wage base.
3 Streamline offboarding workflows so full and final wage settlements are disbursed within 2 working days of resignation or termination.
4 Issue standardized appointment letters in the prescribed statutory format to all current and incoming employees.
5 Review central and state OSH rules to confirm whether mandatory annual health check-ups apply to your sector and employee age brackets.
6 Audit site-level headcounts across all operating units to verify if Safety Officer appointment thresholds are met.
7 Implement contractor wage tracking every month and ensure vendor master agreements contain explicit indemnity and deduction clauses.

Frequently Asked Questions

What is the deadline for paying monthly salaries under the Labour Codes?
Monthly wages must be paid before the expiry of the 7th day of the succeeding month. Under Section 17 of the Code on Wages, this 7-day deadline applies universally to all employees, irrespective of salary amount or company headcount.
How soon must full and final settlement (FnF) be paid upon exit?
Wages due must be settled within 2 working days of resignation, dismissal, removal, retrenchment, or closure of the establishment. Non-wage benefits like Gratuity follow their own statutory timelines (payable within 30 days under the Social Security Code).
Is an appointment letter mandatory for all existing employees?
Yes. Under Section 6 of the OSH Code, no employee can work without an appointment letter in the prescribed statutory format. Existing employees who did not possess compliant letters were to be issued one within 3 months of the Code coming into force.
Are annual health check-ups mandatory for all private sector employees?
Not universally under central rules. Under Central OSH Rules, free annual medical examinations apply to workers aged 40 and above in dock work, mines, and building & construction work. However, state draft rules (e.g., Maharashtra) extend this requirement to all workers aged 40+ in all factories and commercial establishments. Workers in hazardous processes require medical checks regardless of age.
Is the principal employer liable if a contractor defaults on wages?
Yes. Under Section 55 of the OSH Code, if a contractor fails to pay wages within 7 days, the principal employer must pay the full or unpaid wages within 15 days. The principal employer can legally recover this amount from contractor invoices, security deposits, or as a debt.

Need help with Labour Code compliance?

Our compliance specialists assist enterprise employers in aligning payroll timelines, restructuring appointment letters, and auditing contractor liabilities under the new Labour Codes.

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