Rules for faster full and final settlement, annual leave encashment & other provisions are already effective under new labour code even without state government notification

Source: Deloitte India

Note: On account of new “wages” definition under Labour Codes, no change is envisaged on the PF contributions for Indian nationals. It can be continued on basic salary only so long as it is more than Rs 15,000 p.m. (i.e. the statutory wage ceiling).

Which companies need to follow central government labour code rules?

Jatinder Singh Saluja, Partner at AZB & Partners said to ET Wealth Online that the recently notified Central labour code rules apply only to establishments where the Central Government is the ‘appropriate Government’. These mainly include, Central Government establishments / PSUs, establishments engaged in railways, mines, oil fields, ports, air transport, telecommunications, etc.

Saluja says: “However, for the limited purposes of the Code on Social Security, 2020 – if an establishment has offices or branches in more than one State, the appropriate Government for such an establishment is the Central Government.”

According to Saluja, for matters concerning social security of its employees, such an establishment will have to refer to the Central rules even if it is a private establishment. In all other cases, the rules expected to be notified by the appropriate State Government(s) shall be treated as the applicable rules.

However, this does not mean that the labour codes are not applicable till the State rules are notified, since the substantive provisions of the labour codes which have no dependencies on State rules must be followed by every establishment.

Additionally, Saluja says that it is also important to note that for certain specific matters, the Central Government has been provided with exclusive rule-making authority under the labour codes such as on fixing floor wages, framework for calculation of statutory bonus, manner of obtaining gratuity insurance, establishing approved gratuity fund, etc.

Saluja says: “For these purposes as mentioned above, the Central government labour code rules will apply uniformly across India, regardless of whether an establishment’s appropriate Government is Central Government or State Government.”

Will companies get a transition period to adjust salary structures if needed for labour codes?

Meher Mehta, Partner, S&R Associates says that there has been no official transition period notified by the government. However, given that the states are yet to notify the rules in respect of the new labour codes, companies should utilise this period to update their salary structures, and labour practices and policies to comply with the labour codes.

Which companies need to wait for state goverment labour code rules?

Tarun Garg, Director, Deloitte India, said to ET Wealth Online that compliance under the new Labour Codes is driven by the concept of “appropriate government”, rather than merely the size or geographic spread or location of an establishment.

In relation to establishments having departments or branches in more than one State, the Social Security (Central) Rules would be applicable. Additionally, Garg says that certain centrally administered schemes (such as EPF and ESI) apply Central Rules even to establishments operating across multiple States.

According to Garg, State Government rules, on the other hand, apply to establishments where the State Government is the appropriate authority. This broadly includes most private sector entities such as factories, shops and establishments, IT/ ITES companies, and other commercial enterprises. These establishments will need to wait for the notification and implementation of respective State rules before full compliance obligations under the labour codes arise.

Importantly, operating in multiple States does not automatically trigger Central jurisdiction for labour codes. Garg says that except for certain specific provisions particularly under social security, such establishments are generally required to follow State-specific rules in each location.

In summary, jurisdiction is the key determinant: Central establishments follow Central Rules, while most others depend on State-level notifications.

Some labour code provisions can work even without state government notification

Rastogi says that the second set includes provisions for which new rules would ordinarily be expected, but where the existing framework under the earlier labour laws can continue to operate for now, so long as they do not contradict the new labour codes. These too are applicable from November 21, 2025.

Rastogi says:

• This includes provisions such as the gratuity cap of Rs 20 lakh, the wage threshold of Rs 21,000 for statutory bonus, the ESI wage threshold of Rs 21,000, and the EPF wage ceiling of Rs 15,000 for mandatory coverage/contribution purposes under the present scheme framework.
• In the same way, existing schemes and notifications relating to provident fund, pension, employees’ deposit-linked insurance and ESI continue to support compliance until replaced or modified under the new regime.

These labour law provisions can’t work without state government notification

Rastogi says that the third set consists of provisions that are genuinely rule-dependent and can’t be implemented in any meaningful way until the relevant final rules are issued.

Rastogi says this is where the transition is still incomplete. Some examples include the worker re-skilling fund, forms and manner for registration under the Codes, prescribed registers and returns, and certain operational requirements under the Occupational Safety, Health and Working Conditions Code where the details are meant to be supplied by rules.

Rastogi says: “Employee benefits under the new labour code regime are not triggered only when a state issues final rules.” As mentioned above, many substantive provisions already have legal effect across India.