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2026.03.26
On November 21, 2025, India formally enacted a historic reform consolidating 29 labor-related laws into four unified Labour Codes. This reform, the largest labor legislation overhaul since independence, fundamentally rebuilds the complex, fragmented labor regulations inherited from the colonial era, and requires Japanese companies operating in India to thoroughly review their HR and labor management systems as well.
The four newly established 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. The central government released draft central rules on December 30, 2025, and, after a public comment period, formally notified the central rules for all four codes (wages, social security, industrial relations, and occupational safety and health) on May 8, 2026. However, many states have yet to finalize their own implementing rules, so practical compliance needs to be confirmed state by state. This article provides a comprehensive explanation, from the core changes in each code to the concrete steps Japanese companies should take.
The biggest change in the Code on Wages is the introduction of a unified definition of "wages." Previously, the definition of "wages" differed across the Minimum Wages Act, the Payment of Bonus Act, the Provident Fund Act, and the Payment of Gratuity Act; it has now been consolidated. Under the new definition, basic pay plus Dearness Allowance is included in wages, while allowances such as House Rent Allowance (HRA), overtime pay, and commissions are excluded.
The most significant change is that basic pay must be at least 50% of CTC (Cost to Company), a new requirement. Previously, many companies in India kept basic pay low and made up the difference with HRA and special allowances, but this reform triggers the following chain of effects.
The base for calculating PF (Provident Fund) contributions increases, raising the amount companies must contribute. The base for calculating gratuity (retirement payment) also increases, raising the amount paid out at retirement. The bonus calculation base expands in the same way. Industry estimates suggest that companies' statutory labor costs are expected to rise by 5-15%. Recruitment and talent acquisition strategies in India urgently need to be restructured.
A "minimum wage floor" set by the central government now applies nationwide, and no state can set a minimum wage below this floor. This will narrow wage disparities between states over time. For unskilled workers in food manufacturing, the minimum wage guideline is around 10,000-15,000 rupees a month (about JPY 18,000-27,000), with even higher levels set in urban areas such as Delhi and Mumbai.
Under the old law, establishments with 100 or more employees needed prior government approval for dismissals and layoffs, but the new code raises this threshold to 300 or more employees. This gives establishments with fewer than 300 employees more flexibility to reduce headcount based on management decisions. Since many of the manufacturing and sales bases that Japanese food companies set up in India fall below this threshold, it effectively increases HR flexibility for them.
Fixed-term employment has been formally codified into law, guaranteeing fixed-term employees the same wages and benefits as permanent employees. An important change is that the right to receive gratuity now arises after one year or more of service (down from five years previously). For highly seasonal food manufacturing businesses, this makes it easier to secure staff during busy periods, but companies should be aware that the cost structure of fixed-term employment is changing.
The advance notice period for strikes has been unified at 14 days, and strikes during conciliation proceedings are prohibited. New procedures for union recognition have also been established, clarifying the mechanism for determining negotiating rights when multiple unions exist. Cases of business failure in India often stem from deteriorating labor relations.
The groundbreaking feature of the Code on Social Security is the first-ever legal recognition of gig workers and platform workers. Platform companies such as Uber, Swiggy, and Zomato are now required to contribute to a social security fund. Aggregator companies must contribute 1-2% of their annual turnover to the fund. However, since the contribution is capped at 5% of the total amount paid to gig and platform workers, estimating the burden from turnover alone would overstate it.
For business models that rely heavily on gig workers, such as food delivery and cloud kitchens, this provision is a direct cost driver. When Japanese food companies roll out delivery services in India, they need to factor this new statutory cost into their business plans.
The applicability threshold for the Employees' Provident Fund (EPF) remains at 20 or more employees. The Employees' State Insurance (ESI) wage ceiling also remains unchanged at 21,000 rupees a month (25,000 rupees for employees with disabilities). Industry associations have requested that it be raised to 25,000 or 30,000 rupees, but as of 2026 no such notification has been issued; calculating labor costs on the assumption that it has "already been raised" would not match reality. Foreign expatriates are also, in principle, required to join India's social security system, but the India-Japan Social Security Agreement allows them to avoid dual enrollment.
Standard working hours are capped at 8 hours a day and 48 hours a week. Overtime requires the worker's written consent, and overtime pay is twice the regular wage. Total working hours in a day, including overtime, may not exceed 12 hours. Establishments that operate shift work, such as food manufacturing plants, may need to review their shift designs.
For women workers, legal protection for equal pay has been strengthened, and, subject to appropriate safety measures, night-shift work has been permitted. Specifically, for women who work night shifts, companies are required to take measures such as providing safe transportation, installing surveillance cameras, and securing dedicated rest rooms. Appointing a female representative to the Internal Complaints Committee (ICC) is also mandatory.
For all workers aged 40 and over, companies must provide, at their own expense, an annual health checkup, which is now mandatory. For workers engaged in hazardous work, this applies regardless of age. In food manufacturing, where there is a risk of exposure to chemicals and high-temperature environments, compliance with this provision is especially important.
Protection for workers who are retrenched has been strengthened. Companies must provide departing workers with a reskilling fund equivalent to 15 days of their final salary, which must be contributed within 10 days of retrenchment. This fund is transferred to the worker within 45 days and is used to acquire skills for re-employment.
In addition, for all workers, issuing a written appointment letter is now mandatory. Failing to issue an appointment letter is itself a compliance violation on the employer's part and subject to penalties. Verbal employment agreements remain valid under Indian contract law, but since they leave no record of wages or notice periods and put the employer at a disadvantage in a dispute, putting agreements in writing has become the practical norm. the cultural gap between Japan and India Careful explanation and documentation that take this into account are essential for stabilizing labor relations.
Step 1: Redesign the Salary Structure— Companies need to promptly complete rebuilding their salary tables to comply with the 50% rule, in light of the central rules notified in May 2026. Working with HR consultants, they should review CTC as a whole while designing the structure to minimize the impact on employees' take-home pay.
Step 2: Fully Update Employment Contracts— Create employment contract templates that comply with the new codes and renew contracts with all employees. For fixed-term contracts too, terms equivalent to those of permanent employees must be clearly stated.
Step 3: Review Social Security Compliance— Respond to the expanded coverage of EPF, ESI, and gratuity by updating payroll systems and recalculating contribution amounts. Also check the procedures for applying the India-Japan Social Security Agreement.
Step 4: Establish Workplace Safety Standards— Comprehensively address the requirements of the OSH Code, including a system for conducting health checkups, facilities to support women's night shifts, and the establishment of a safety and health committee.
Step 5: Local partners and Local Law Firms— Responding to implementing rules that differ from state to state is difficult without local experts. In particular, companies need to build an advisory structure for preventing and quickly resolving labor disputes.
The new Labour Codes are bringing structural change to talent strategy in India's food industry. First, the rise in statutory labor costs from the 50% rule is a factor that squeezes profit margins in labor-intensive food manufacturing. At the same time, the legal codification of fixed-term employment and the raised 300-employee threshold increase flexibility to expand or scale back operations.
What matters most for Japanese food companies is optimizing the balance between expatriates and local hires. Under the new codes, foreign workers are subject to the same social security as Indian workers, but exemption procedures are also available under the India-Japan Social Security Agreement. Strengthening local hiring is recommended as a way to achieve both statutory cost efficiency and a cultural bridging function at the same time.
In addition, FSSAI certification The new codes' salary standards and employment contract requirements also apply to hiring the Food Safety Supervisor required for certification, so companies need a system that manages regulatory compliance in an integrated way.
India is carrying out a reform that consolidates numerous labor-related laws into four unified Labour Codes: the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code. Full implementation is being pursued in stages, alongside the development of state-level implementing rules.
Under the new unified wage definition, basic pay must be at least a certain proportion of total compensation. Previously it was common to keep basic pay low and make up the difference with allowances, but this change increases the calculation base for provident fund contributions, gratuity, and bonuses, and companies' statutory labor costs are expected to rise as a result.
The threshold for establishments that require prior government approval to dismiss or lay off employees has been raised. This gives establishments below the threshold more flexibility to adjust headcount based on management decisions. Since many of the bases set up by Japanese food companies fall below this threshold, it effectively increases their HR flexibility.
A cap has been set on standard working hours, and overtime requires the worker's consent and is paid at a premium rate. There is also a cap on total working hours per day. Food manufacturing plants and other establishments that use shift work may need to review their shift designs.
Gig workers and platform workers are now legally recognized, and a system requiring aggregator companies to contribute to a social security fund has been introduced. This becomes a cost factor for companies running food delivery or cloud kitchen operations. Fixed-term employment has also been codified into law, making it easier for highly seasonal food manufacturing businesses to secure staff, though the cost structure changes as a result.
Completing the redesign of salary tables to comply with the new wage definition by the deadline is an urgent priority. Companies also need to update employment contracts to comply with the new codes and review payroll systems to reflect the expanded scope of social security. Since responding to implementing rules that differ by state is difficult without local experts, working with local partners is important.
It is true that India's new Labour Codes bring additional costs and compliance burdens for companies. But the essence of the reform lies in achieving both stronger worker protection and greater predictability in the business environment. With 29 laws consolidated into four, the outlook for compliance has improved dramatically.
Companies that act early can treat compliance not as a "cost" but as a competitive advantage that attracts top talent. Fair salary structures, transparent employment terms, and robust social security are powerful differentiators for winning excellent talent in India. It is essential to position swift, proper compliance with the new labor laws as a growth engine for business in India.
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