There has been a complete overhaul of employment laws in India owing to the adoption of four labor codes. This knowledge is crucial for foreign businesses operating in India to effectively handle payroll, employee benefits, policy management, and regulatory compliance.
The India Labour Code legislation amalgamates 29 labor acts at the center level into four labor codes for wages, industrial relations, social security, and occupational safety. The Indian government enforced the four labor codes starting November 21, 2025, thus becoming significant for 2026.
These changes in labor legislation have particular significance for foreign businesses operating in India either by coming to India or employing people in India through Employer of Record (EOR).
What Are the Four Labour Codes in India?
The four Labour Codes in India bring several previously separate employment laws under four broader frameworks:
Code on Wages, 2019: Covers minimum wages, payment of wages, bonuses, and related wage matters.
Industrial Relations Code, 2020: Covers trade unions, industrial disputes, standing orders, and other aspects of employer-employee relations.
Code on Social Security, 2020: Covers social security benefits and schemes, including provident fund, employee state insurance, gratuity, and provisions for certain categories of workers.
Occupational Safety, Health, and Working Conditions Code, 2020: Covers workplace safety, health, welfare, working conditions, contract labor, and related matters.
The consolidation is intended to simplify India’s labor-law framework while strengthening employee protections and making compliance more streamlined for businesses.
Also Read: Cost of Hiring An Employee in India for Foreign Companies
Why Do India’s New Labor Laws Matter to Foreign Employers?
When an organization operating from abroad employs people in India, then it has to ensure that the Indian employment requirements are followed even though the HR policies of that organization are developed in another country.
Thus, the new laws governing employment in India govern the domains which are of prime importance for employment administration, such as remuneration structure, social security provisions, fringe benefits, working conditions, and record keeping by the employer.
This implies that foreign organizations cannot blindly apply their global HR policies to their Indian employees.
For instance, the remuneration structure formulated for employees of the organization working in other countries like the US and Europe cannot be applied, as it may not conform to the wage requirements of India.
In addition, the foreign organizations need to also take into consideration the state-level requirements. As labor is a subject in the Concurrent List of India, this means that both central and state governments regulate labor matters.
Changes to Wages Under the New Labour Code India Framework
Another very crucial topic from an employer’s perspective would be the definition of wages.
According to the Code on Wages, where allowances or other excluded components constitute more than 50 percent of the total remuneration, then the excess above that is included as wages.
It may have implications for the calculation of some employee benefits and statutory contributions.
The Code on Wages also sets out the framework for minimum wages. There is provision for a floor wage, set by the Central Government. The minimum wages fixed by the appropriate government should not be lower than the floor wage applicable.
It is therefore necessary for foreign employers to check the pay structure of their Indian employees rather than follow a globally standardized pay structure.
Social Security and Employee Benefits
The Code on Social Security deals with several social security provisions under one code. It includes, inter alia, provisions related to provident funds, employee state insurance, gratuity, and other social security benefits, subject to applicable conditions.
For foreign employers, it is particularly relevant since statutory benefits could make a significant portion of the total cost of employment in India.
An organization must determine which social security regulations apply to its workers, depending on certain criteria like the number of workers, eligibility of workers, salary, and the nature of the business.
Also, payroll systems must be correctly set up for proper calculation and recording of contributions/deductions as required.
Occupational Safety and Working Conditions
The code of Occupational Safety, Health, and Working Conditions deals with matters related to the workplace concerning health, safety, welfare, and working conditions.
Though certain requirements of the Code would apply more specifically to businesses running physical establishments, for foreign employers having employees in India, it would be prudent to go through the requirements of the Code applicable to their employees and working environment.
Depending upon the type of business and establishment, the employer would need to look into aspects like working conditions, welfare of employees, occupational safety, working hours, and other requirements.
Don’t Miss: Working Hours in India: Laws, Overtime Rules & What Employers Should Know
Industrial Relations and Employee Management
Trade unions, industrial disputes, and standing orders are some of the areas covered by the Industrial Relations Code.
As the foreign organization grows its Indian workforce, it is vital to understand the local regulations on employee relations.
It is important to review employment contracts, disciplinary procedures, termination policies, and general workplace policies to ensure their suitability for the Indian employment market.
A global HR manual can be very helpful as a starting point, but it might require certain India-specific clauses.
What Should Foreign Employers Do in 2026?
Employers should adopt a proactive stance when dealing with compliance to the Labour Code in India.
- Employment Agreements
The employment agreements should provide clear definitions of salary, position, work arrangements, benefits, notice periods, and other relevant terms.
- Salary Structures
Employers should analyze the structure of remuneration packages of their employees and identify whether there is compliance with the wage provisions.
- Payroll Operations
The payroll teams should verify the appropriateness of statutory deductions and contributions.
- Verify State Requirements
As labour regulations can contain requirements from both national and state level, it is important to determine the labour regulations that apply to places where their employees operate.
- Keep Employee Records
Keeping accurate records of employee and payroll data will be important to demonstrate the company’s compliance and perform further employment administration.
How an EOR May Assist Foreign Businesses
If a business enters India for the first time, it may spend some time establishing local employment infrastructure. Using an Employer of Record may be a more convenient option for a company.
The EOR will be the legal employer of workers, while the client company retains responsibility for managing tasks performed by their employees.
An EOR may undertake several employment administration activities, such as:
- Employment contracts
- Payroll management
- Employee on boarding
- Statutory contributions
- Benefits management
- Employment records
- Naleving
All these activities will make the new labour code in India requirements much more convenient to handle for foreign businesses without any Indian infrastructure.
But it is necessary to understand who is responsible for what between a company and its EOR.
Why Local Compliance Support Matters
The introduction of the Labour Codes will attempt to simplify the labor laws of India; however, implementation must be handled properly.
For a foreign entity, compliance is not limited to only the central laws. Compliance obligations might differ based on various parameters like the geographical location of the employee, business structure, industry, number of employees, etc.
Working with a seasoned local partner will allow businesses to determine the relevant obligations and put in place proper employment processes.
Insource is here to help foreign entities manage their India workforce with employment, payroll, and compliance services. Using local expertise along with proper HR processes, Insource India is in a position to assist businesses in managing their employees and decrease operational complications.
Conclusion
The newest labour law of India has seen a major move towards a much more consolidated approach to employment. It is necessary for foreign employers to have a look at the issues of salaries, employment agreements, payroll processes, employee benefits, and workplace policies when it comes to the labor codes.
However, businesses moving into India don’t have to undertake all the duties themselves. An experienced EOR/local compliance company can help set up employment procedures.
Those businesses that plan to hire employees in India in 2026 should be aware of the new approach of the Labour Codes.
FAQ’s
- What are the four labor codes of India?
The four labor codes are the Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health, and Working Conditions Code, 2020. Together they consolidate 29 central labor laws.
- When did India’s new Labour Codes become effective?
The four Labour Codes became effective on November 21, 2025, and are therefore significant for the employment compliance landscape of India in 2026.
- Is there applicability of India’s Labour Codes to foreign companies?
Foreign companies hiring employees in India could be required to comply with certain Indian labor and employment requirements depending upon certain parameters.
- In what way does an EOR assist foreign employers in complying with India’s labour laws?
EOR will be able to administer certain aspects of local employment management, including contracts, payroll, benefits, employee on boarding, and compliance processes for foreign companies managing their Indian workforce.
- Are there any state-level labor laws that foreign employers have to comply with?
Yes, labour laws are regulated by central as well as state level legislative frameworks.
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