Labour laws in India are undergoing significant changes to align with the country’s evolving workforce, impacting everything from wage structures to gig worker protections. As a result, 2025–26 is shaping up to be a transformative year for HR strategies and payroll services. For small and medium businesses, it’s crucial to stay updated with these changes to avoid compliance issues, penalties, or employee dissatisfaction.
Labour Law Updates in India
1. The Four Labour Codes: What’s Changing?
The Government of India is replacing 29 existing labour laws with these four simplified labour codes:
- Code on wages
- Code on social security
- Code on occupational safety, health & working conditions (OSH)
- Code on industrial relations
They aim to eliminate complexities from different state rules, thereby fostering transparency and standardisation in employment across the country.
Key points to note:
- The new wage definition includes basic pay, allowances, and bonuses.
- The government will bring social security benefits to contract and gig workers.
The central government expects state governments to enforce these codes by the end of the year 2025.
2. New Wage Structure & Overtime Regulations
With the new Wage Code, basic wages must form at least 50% of the total salary. This could increase employers’ contributions to the provident fund (PF), gratuity, and other benefits.
Overtime rules are also changing:
- Employees cannot work more than 48 hours a week.
- If daily work hours increase (e.g., 12 hours/day), companies must offer longer weekly off.
- Overtime pay must be at least double the regular rate.
What this means: Companies will need to revise salary structures, adjust shift schedules, and update their payroll services to remain compliant.
3. Increased Focus on Gig and Platform Workers
In India, there is a rise in the gig workforce: delivery guys, freelancers, platform workers, etc. The Social Security Code includes:
- Mandatory registration of gig workers.
- Contributions to insurance, maternity, and pension.
- Introduction of state-level welfare boards for these workers.
E.g., Karnataka has implemented a 1-2% “welfare cess” on aggregators to fund workers’ welfare. Businesses that depend on freelance or contract labour should plan for these financial and legal responsibilities.
4. Simplified Compliance through Digital Portals
The government is moving towards full digitalisation of compliance with platforms like:
- Shram Suvidha Portal for unified labour returns and inspections.
- ESIC and EPFO portals for statutory filings.
- LIN (Labour Identification Number) to track all labour law registrations.
Companies will be expected to:
- File returns online.
- Maintain digital attendance and wage records.
- Register establishments on centralised portals.
This reduces paperwork but increases the need for proper digital systems and regular updates.
5. Gratuity, PF & ESI: Broader Eligibility
Employee benefits have been extended or expanded in many worker categories for 2025-26:
- Gratuity, for certain categories, is now payable after 1 year, having been made eligible for payment after 5 years.
- In many states, PF and ESI may be extended to the gig worker and contract labour.
So, more employees are now entitled to long-term benefits, and companies should include them in payroll and compliance reports accordingly.
6. POSH & Workplace Safety Requirements
States are now strictly enforcing the Prevention of Sexual Harassment (POSH) Act and workplace safety norms. Key requirements include:
- Setting up Internal Committees in offices with more than 10 employees.
- POSH training and compliance reporting.
- Safety measures for workers, especially in factories and construction.
Some states, like Odisha, have introduced monthly compliance checks, while Maharashtra is streamlining welfare board registration for construction workers.
7. Four-Day Work Week & Flexible Hours
The labour codes provide for flexibility in working hours and allow businesses to, in particular:
- Implement a four-day working week with longer shifts per day.
- Have staggered working hours.
- Give a minimum rest time and a weekly off.
Note: These changes are for voluntary implementation and, depending upon the mutual consent of the employees, shall be written down in clear terms by the employer, who shall observe overtime payments in unequivocal terms.
8. Professional Tax and Labour Welfare Fund Changes
A few states have revised professional tax and labour welfare contributions. For example:
- Karnataka now levies a PT of Rs 200 per month (Rs 300 in February) on salaried persons.
- Haryana and Gujarat increased their monthly contributions to labour welfare funds.
These are niggling yet repetitive costs that must be factored into the payroll system, and businesses using payroll services should stay informed about state-specific changes.
9. Employee Data Privacy Under DPDP Act
The Digital Personal Data Protection (DPDP) Act is expected to become fully enforceable by 2025. It applies to employee data like:
- Salary details
- PAN, Aadhaar, and ID proofs
- Biometric records
Employers will be treated as “data fiduciaries” and must:
- Get employee consent before collecting or processing personal data.
- Store data securely and control access.
- Provide transparency on how data is used.
Review your HR software, onboarding processes, and contracts to ensure compliance.
10. Voluntary Compliance Incentives – SPREE 2025
The Employees’ State Insurance Corporation (ESIC) has launched the SPREE Scheme 2025 to encourage small establishments to register under the ESI Scheme:
- No penalties or legal action for past non-compliances.
- An incentive of ₹3,000 to the employer, with an additional incentive of ₹15,000 for each new employee registered.
- Valid till December 31, 2025.
This is a golden opportunity for small industries to bring their workforce under ESIC without worrying about penalties.
How These Changes Impact Small Businesses
Pros:
- Simpler laws across states
- Increased protection for all types of workers
- Opportunity to digitise HR processes
Challenges:
- Salary restructuring
- Higher compliance costs (e.g., PF, ESI, welfare)
- Need for payroll and compliance upgrades
Tip: Partnering with a reliable provider of payroll services and compliance expertise can help manage these changes smoothly.
What Should Businesses Do Now?
- Review salary and shift structures, ensuring they comply with the new definition of wages and working hour limits.
- Enhance payroll services by updating payroll systems to automate calculations for overtime, PF, ESI, and professional tax.
- Digitise compliance, with all filings and registers to be done through government portals.
- Conduct awareness programmes for HR, admin, and accounts teams, so that they are aware of the law and help implement it.
- Prepare for gig workers by analysing contracts and developments in welfare contributions.
Paysquare Can Help You Stay Compliant
With the rapidly changing regulations, staying compliant can feel overwhelming — that’s where Paysquare’s labour law services come into play.
We offer:
- End-to-end payroll processing
- Accurate PF, ESI, PT, and gratuity management
- Digital compliance with government portals
- Expert updates on state-wise law changes
- Custom support for small businesses, startups, and growing companies
Let’s Get You Labour Law Ready
Talk to Paysquare Today
✔ Free compliance check-up
✔ Custom payroll setup for your team
✔ No penalties. No delays. Just peace of mind.
FAQs
Q1. Do the new labour laws become a framework to be adhered to simultaneously by every businessman?
Well, yes, they apply to almost all businesses, though the mode of implementation might have a state-wise variation. By 2025, therefore, all employers shall gear themselves to adjust to them.
Q2. Will I have to restructure the salary with the new definition of wages?
Yes, if your basic pay is less than 50% of the total salary, it has to be restructured to avoid compliance issues.
Q3. Do PF and gratuity apply to freelancers/gig workers today?
In certain cases, yes. Under the new Social Security Code, gig workers are entitled to benefits through wage boards and employer contributions.
Q4. What is the SPREE Scheme about?
ESIC is implementing SPREE as a limited-time scheme, offering legal immunity and financial incentives to encourage employers to register their employees and comply with ESIC provisions.
Q5. What is the DPDP Act, and how does it relate to employers?
The Digital Personal Data Protection Act will require that employers collect, store, and use employee data on the basis of consent and transparency.
