What do the four Labour Codes, in force since 21 November 2025, change for my offer letters, salary structure and fixed-term or gig staff?
Four things to fix in your paperwork. Every employee now gets a written appointment letter, so nobody joins on a WhatsApp message any more. 'Wages' must be at least 50% of total pay: if allowances make up more than half, the excess is added back to wages, which raises the base for PF and gratuity, so re-cut your salary structure and your CTC maths before the next offer goes out. A fixed-term employee now earns gratuity after one year (pro rata) instead of five, which changes what a short contract really costs. And gig and platform workers come under social security, funded by contributions from the platforms that engage them. The Codes replaced 29 central labour laws, but states have been notifying their own rules through 2026, so check your state's position with your payroll provider or CA before you change anything.
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An employer's guide, from an Indian payroll company, to the four Labour Codes that took effect on 21 November 2025 and replaced 29 older laws, covering the new wage definition, fixed-term gratuity, appointment letters and gig-worker social security.
This is the India-specific breakdown you owe your team: what full-and-final actually includes (unpaid salary, leave encashment, pro-rata bonus, gratuity after five years for permanent staff and one year for fixed-term staff, EPF), what you can and cannot deduct, and the hard new timeline under the Code on Wages, 2019 (wages within two working days of exit, gratuity within 30 days). It turns your good intentions into a correct, on-time payout.
Under the new labour codes, final wages are due within two working days of the last day, not the old 30 to 45
FnF spans salary, leave encashment, pro-rata bonus, gratuity, and EPF, minus only reasonable contractual deductions
Gratuity has its own 30-day statutory clock (the Payment of Gratuity Act now sits inside the Code on Social Security); run IT, finance, and admin clearances in parallel to meet it
This is the legal spine for doing it cleanly under Indian rules. It spells out why parting during probation is the cleanest exit (lighter notice, no retrenchment machinery), the full-and-final settlement clock (exit wages due within 2 working days of the last day under the Code on Wages), and exactly what to document: termination letter, settlement statement, payment records, and the employee's acknowledgment. It also flags state-by-state notice differences (Maharashtra, Karnataka, Delhi), so a Bengaluru fire follows different paper than a Mumbai one.
From
India Briefingby Dezan Shira & Associates15 min read
Firing during probation is materially cleaner than firing a confirmed employee, so move inside the 60-to-90-day window if you can
Full-and-final settlement (salary, leave encashment, statutory dues) is legally due within 2 working days of the last day, so pay fast and issue the relieving letter
Keep the paper trail: termination letter, settlement statement, payment proof, and a signed acknowledgment protect you if it is ever disputed
This is the direct answer to the 'can't I just run them as a consultant on invoices?' temptation. It lays out the control, integration, economic-dependence, and mutuality tests Indian courts actually apply, and it is blunt that courts take a pro-employee stance: misclassification means regularisation, back wages, and back-dated PF/ESI/gratuity plus interest and penalties. It also draws the honest line on where a genuine contractor fits (short, project-scoped work, own invoices, multiple clients) versus a full-time person under your direction who is legally an employee.
Indian courts weigh control, integration, economic dependence, and mutuality of obligation, not the label on the invoice, so a full-time 'consultant' under your direction reads as an employee
Getting it wrong means back-dated PF, ESI, and gratuity plus interest and penalties, catch-up bills that routinely run into lakhs for one senior hire
Contractors genuinely fit short, project-scoped work where the person invoices in their own name and serves other clients; your first core hire almost never qualifies
