India just rewrote its employment law rulebook. Twenty-nine separate central labor laws have been folded into four codes: Wages, Industrial Relations, Social Security, and Occupational Safety, Health and Working Conditions. They officially kicked in on November 21, 2025, and the central rules followed on May 8, 2026, along with Model Standing Orders. States are moving at their own pace, so the compliance picture looks different depending on where you operate, but employers shouldn’t be waiting around for every state to catch up before touching their contracts.

Here’s what actually needs fixing.

1. The 50% wage rule

This is the one causing the most headaches. Basic pay plus dearness allowance now has to make up at least 50% of an employee’s total CTC. A lot of Indian companies, especially in IT, where basic pay often sits around 30-35% of CTC, are going to need to restructure salaries. And this isn’t just paperwork: it directly moves the needle on PF contributions, gratuity, and bonus eligibility, all of which key off the wage definition. Offer letters and contracts need updated salary break-ups reflecting the new floor.

2. Fixed-term employment clauses

Fixed-term employees now get statutory benefits, including gratuity on a pro-rata basis, and they don’t need five years of continuous service to qualify anymore. Contracts for fixed-term hires should build in pro-rata gratuity, leave, and bonus from day one, rather than treating these as something that kicks in only after some minimum tenure.

3. Gratuity and exit settlements

Gratuity rules have shifted for fixed-term staff, and full-and-final settlements on exit now have to happen fast within 48 hours in many cases, according to guidance so far. Termination and resignation clauses need to reflect that tighter timeline, and frankly, most payroll systems will need an upgrade to actually pull it off.

4. Contract labor thresholds

The threshold at which contract labor rules kick in has gone up from 20 to 50 workers, which eases the burden on smaller companies. But there’s a sharper restriction too: contract or gig labor can’t be used for an organization’s “core activities” anymore. If you’re using outsourced staffing, it’s worth reviewing whether the work being farmed out actually falls foul of this.

5. Gig and platform workers

For the first time, gig and platform workers get a formal social security framework. If your business engages delivery partners or freelance platform workers, this doesn’t necessarily mean reclassifying them as employees, but your engagement agreements should account for the new registration and contribution obligations that now apply.

6. Standing orders

With Model Standing Orders now notified for several sectors, companies above the relevant employee threshold need to align internal service rules, disciplinary procedures, and working condition policies with the new templates and reference them properly in contracts and handbooks.

7. State-by-state variation

Because states are implementing this at different speeds, a single national contract template probably won’t cut it if you operate across state lines. Build enough flexibility into your contracts to accommodate state-specific rules as they land, rather than assuming one national standard applies everywhere from day one.

The practical takeaway

Don’t wait for a clean “switch-on” date; there isn’t going to be one. Several states already have rules in force, and the wage, gratuity, and fixed-term provisions carry genuine financial exposure right now. Start with wage structuring and fixed-term contracts, then work through standing orders and gig-worker agreements. Treat this as a 2026 problem, because it already is one.

Author by,
RVR Attorneys Associates