New Labour Reform: Social Security and Payslips

India Activates the 4 Labour Codes: What This Means for Employment Contracts, Payroll and Workers' Rights

Our employment lawyer Manan Agarwal, from www.krayman.com reports on the significant labour reform introduced by the Indian Government, with the 4 Labour Codes now fully in force since 21 November 2025, replacing 29 central labour laws, and with Central Rules published on 30 December 2025 (currently in the consultation phase). If your company based in Spain operates in India (through a subsidiary, branch, outsourcing arrangement, critical suppliers or local hiring), this change has a direct impact on employment contracts, payroll, Social Security, internal policies and dispute management.

Below is a practical summary (from a compliance and HR perspective), focusing on the areas most likely to generate operational impact and risk.

1) What Changes in Practice (Overview)

The new framework aims to harmonise definitions and processes (registration/returns), strengthen rights and coverage, and introduce more structured mechanisms for inspections and dispute resolution. Among the key reforms highlighted in the document are: the National Floor Wage, a prohibition on discrimination (including gender identity), an Inspector-cum-Facilitator system, more predictable dispute resolution, and a "single registration / single licence / single return" approach.

2) Employment Contracts: Greater Focus on Equal Treatment and Hiring Models

Fixed-Term Employees

Fixed-Term Employees (FTEs) are now entitled to the same benefits as permanent staff (leave, medical care and Social Security) and, notably, the document highlights entitlement to gratuity after just 1 year of service (previously 5). In practice, this typically requires:

• reviewing contract templates and benefits clauses,

• recalculating associated costs by workforce category,

• aligning internal eligibility policies.

Subcontracted workers (Contract workers)

The principle is reinforced that the principal employer must assume health and Social Security benefits for contracted staff, as well as a free annual medical examination. This has implications for:

• commercial contracts with suppliers (allocation of obligations, audits and evidence),

• onboarding controls, and

• document traceability (particularly where there is high staff turnover).

Gig and platform workers

The terms "gig worker", "platform worker" and "aggregator" are defined for the first time. Aggregator contributions of 1–2% of annual turnover are envisaged, capped at 5% of the amount payable to workers. If you operate through platforms or hybrid models, it is worth mapping:

• whether you are acting as an "aggregator" or as a client,

• how the working relationship is documented (to avoid reclassification),

• and what evidence you will be required to retain.

3) Payroll: payment schedule, salary structure and overtime

On payroll, the document states that salary release is mandatory before the 7th of each month. It also provides for double salary for overtime, and reinforces leave rules (see the following section).

In addition, the Code on Wages, 2019 standardises the definition of "wages": this includes basic pay, dearness allowance and retaining allowance, and introduces relevant rules on:

• benefits in kind: these count towards wages provided they do not exceed 15% of total wages,

• and the cap on "exclusions": if exclusions exceed "one half" (or the notified percentage), the excess is brought back within the definition of wages.

In practice, this may require restructuring remuneration components in order to correctly calculate contributions and associated contingencies.

4) Social Security and retirement: extended coverage, gratuity and time limits

Although Social Security in India is not identical to the Spanish system, the message is clear: broader coverage, greater traceability and more predictability in the event of inspections or regularisations.

The document highlights, within the Code on Social Security, 2020, the following:

• Voluntary opt-in / opt-out from EPF and ESI where there is agreement between the company and a majority of employees, subject to approval.

• Unified registration framework: if already registered under another central labour law, no new registration would be required, with update obligations as prescribed.

• Expanded ESI coverage to establishments with 10+ employees (except seasonal workers), with the possibility of applying it even to a single employee in hazardous activities.

• Gratuity and FTE: pro-rata gratuity after 1 year and a mandatory insurance requirement for the liability (with exceptions).

• Maternity (medical bonus): the statutory maximum cap on the bonus is removed, giving the government flexibility to update it.

• Schemes for unorganised, gig and platform workers, including possible funding through CSR.

• 5-year time limit for initiating inquiries and determining debts under EPF/ESI, providing legal certainty.

• Employment contract expressly included within the definition of "employee" for Social Security benefits, including gratuity.

From a retirement perspective (and in terms of exit costs), the impact typically arises from (i) the calculation base, (ii) the expansion of covered groups, and (iii) insurance and liability management requirements.

5) Employment rights: leave entitlements, equal pay and non-discrimination

Under the "worker benefits" section, the document covers:

• Guaranteed minimum salary and a requirement to issue appointment letters to all workers,

• a mandatory obligation to pay during leave periods,

• entitlement to annual leave after 180 days worked in the year,

• and strengthened equal pay provisions ("equal pay for equal work").

Particular attention is given to equality and the protection of specific groups:

• a statutory prohibition on gender discrimination, pay equality, and entitlements enabling women to work night shifts and in all types of roles, subject to consent and appropriate safety measures,

• as well as representation of women on grievance committees.

6) Industrial relations and disputes: strikes, deadlines and internal committees

Under the Industrial Relations Code, 2020, the document highlights measures with a direct impact on dispute management:

• 60-day strike notice period and a minimum conciliation window; extended to all establishments, with a scenario where 50%+ of workers take "casual leave" also classified as a strike.

• 2-year time limit for initiating individual disputes relating to dismissal/termination, preventing "stale" claims from being brought.

• mandatory Grievance Redressal Committee in industrial establishments with 20+ workers: up to 10 members, equal representation, and set deadlines (submission within 1 year; resolution within 30 days).

A structural shift is also highlighted: greater flexibility in retrenchment/lay-off/closure, with prior approval required only from 300+ workers — a threshold that states cannot reduce — along with the creation of a Worker Re-Skilling Fund (15 days' salary) in retrenchment cases.

7) Quick checklist for companies (based in Spain) with operations or staff in India

The document sets out a highly actionable roadmap for employers:

1. Identify roles that qualify as "workers" based on the nature of the work.

2. Review the impact of the wages definition on the salary structure.

3. Assess the cost impact of enhanced benefits.

4. Reconsider engagement models (contract labour and FTE).

5. Align HR policies and payroll with the Codes and applicable state rules.

6. Strengthen controls, governance and periodic reviews.

8) International mobility: visa and work permit (keeping the frameworks separate)

The document does not regulate visas or work permit; however, if you are seconding staff from Spain or hiring foreign talent in India, it is advisable to coordinate immigration and employment matters so that registration, contractual structure, payroll and Social Security align with the applicable framework (and with the "worker / employee" classifications used internally).

9) Where employment lawyers add value in this transition

This type of reform tends to fail not so much because organisations are unaware it exists, but because of challenges in operational implementation: employment contracts that do not reflect benefits, payslips poorly structured in relation to the definition of wages, or outsourcing arrangements lacking supporting evidence. This is where employment lawyers typically have the greatest impact: contract review, policy redesign, payroll audits, and mapping of Social Security obligations (including those linked to retirement/gratuity), as well as dispute protocols and internal committees.

Download the presentation here prepared by our employment law colleagues in India.