Labour Law Compliance in Varanasi: A 2026 Guide to the New Labour Codes
Updated for the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the OSH Code
For decades, employers in India worked around 29 separate central labour laws, some dating back to the 1920s. That changed on 21 November 2025, when the government notified all four Labour Codes together: 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. These changes repealed the older Acts in one stroke.
For a business in Varanasi, this isn't a distant policy change. Uttar Pradesh has already notified its own rules under the Industrial Relations Code and the Social Security Code, and central rules under all four Codes were finalised in May 2026. The compliance framework you were following even a year ago has, in several important respects, already changed.
This guide sets out what's actually different, what still needs to be checked at the state level, and where employers in Varanasi tend to get caught out during the transition. At LexSphere, we're helping businesses, from small teams to firms with a few hundred employees, work through exactly this shift. The right response depends heavily on your headcount, your current wage structure, and how far Uttar Pradesh's own rules have progressed.
Note: State-level implementation is still moving. Central rules were notified in May 2026, and Uttar Pradesh has notified final rules under the Industrial Relations Code (Notification No. 251/36-2-2026) and the Social Security Code (Notification No. 427/36-3-2026), with wage code rules progressing separately. Always confirm current status before restructuring payroll or contracts.
The Four Codes, in Brief
The 29 repealed laws, including the Payment of Wages Act 1936, the Minimum Wages Act 1948, the Industrial Disputes Act 1947, the Factories Act 1948, the Trade Unions Act 1926, the Payment of Bonus Act 1965, the EPF & Miscellaneous Provisions Act 1952, and the Payment of Gratuity Act 1972, have been folded into four consolidated Codes:
1. Code on Wages, 2019: wage definition, minimum wages, payment timelines, bonus
2. Industrial Relations Code, 2020: standing orders, retrenchment, dispute resolution, trade unions
3. Code on Social Security, 2020: PF, ESI, gratuity, maternity benefit, gig and platform worker coverage
4. Occupational Safety, Health and Working Conditions Code, 2020: workplace safety, working hours, welfare facilities
The POSH Act, 2013 was not one of the 29 laws folded into the Codes. It remains a standalone statute, and its obligations are unchanged by this transition.
What Has Actually Changed: The Points Employers Keep Missing
1. The 50% Wage Rule
Under the new definition of "wages," basic pay plus dearness allowance must add up to at least 50% of an employee's total remuneration. If a company's current salary structure has basic pay set lower, which is common, the shortfall gets added back into the wage base for statutory calculations.
In practice, this means PF contributions, gratuity, bonus, and leave encashment may be computed on a larger number than before, even if an employee's total CTC hasn't changed. Businesses that haven't reviewed their salary breakup should treat this as a priority.
2. Gratuity: A New 1-Year Rule for Fixed-Term Staff
Under the old Payment of Gratuity Act, gratuity generally required 5 years of continuous service. That threshold still applies to permanent employees under the Code on Social Security.
Fixed-term employees and contract workers now qualify for pro-rata gratuity after just 1 year of continuous service. A company running a large fixed-term or project-based workforce may therefore have a gratuity liability that it has not yet accounted for.
Combined with the 50% wage rule pushing up the calculation base, gratuity costs for this category of worker can rise meaningfully.
3. Standing Orders and Retrenchment Thresholds Have Moved
Under the Industrial Relations Code, the requirement to maintain formal standing orders now applies to establishments with 300 or more workers, up from 100 previously.
Government permission before retrenchment, layoff, or closure is likewise now required only above the 300-worker threshold. For establishments with 100 to 299 workers, the notice period for retrenchment has increased to 60 days.
For a mid-sized Varanasi employer, it is important to check which side of the new threshold the establishment falls on.
4. Fixed-Term Employment Is Now Formally Recognised
Employers can now hire staff on fixed-term contracts without the arrangement being treated as disguised permanent employment, provided the terms are genuinely fixed-term.
Fixed-term employees are also entitled to parity with permanent staff on wages, hours, leave, and statutory benefits for the duration of their contract.
5. Working Hours and Workplace Safety
The OSH Code sets a national daily working hours cap of 8 hours. It also introduces safety obligations tied to headcount.
A dedicated Safety Officer is required for establishments with 500 or more workers, while a safety committee is required for establishments with 250 or more workers.
6. ESI and Social Security Coverage Has Widened
The Code on Social Security extends ESI coverage to hazardous-industry workers and certain unorganised-sector categories that weren't covered before. It also creates a framework for extending social security to gig and platform workers.
The core maternity benefit entitlement of 26 weeks' paid leave continues under the new Code.
What This Looks Like for Uttar Pradesh Specifically
Uttar Pradesh has moved faster than many states. Its rules under the Industrial Relations Code supersede four older state laws and introduce several state-specific requirements employers should note.
• Works Committees are mandatory for applicable establishments, capped at 20 members, with worker representation at least equal to employer representation and proportional representation for women workers.
• Grievance Redressal Committees are required in establishments with 20 or more workers, with equal employer and worker representation, a maximum of 10 members, and a three-year tenure.
Separately, the state's rules under the Code on Social Security supersede the older UP ESI Rules, Gratuity Rules, Maternity Benefit Rules, and Building & Other Construction Workers Rules. Wage Code rules for the state have also been issued and are progressing toward finalisation.
Where This Leaves the Rest of the Compliance Picture
A few areas that mattered before the Codes still matter now, largely unchanged in substance.
Appointment Letters and Employment Agreements
Appointment letters and employment agreements remain the foundation of a defensible employment relationship. They should clearly address designation, compensation, probation, notice period, confidentiality, and termination terms.
Contracts drafted before the 50% wage rule was applied may already be understating an employer's actual statutory obligations.
Full and Final Settlement
The components of full and final settlement haven't changed, but the numbers behind gratuity and leave encashment may have, given the revised wage base.
Exit calculations based on old salary structures risk underpaying or overpaying departing employees.
POSH Compliance
The POSH Act remains unaffected by the Labour Codes.
Any workplace with 10 or more employees is still required to constitute an Internal Committee under the POSH Act, 2013, maintain a functioning complaint process, complete annual reporting, and conduct staff awareness training.
HR Policy and Compliance Audits
A structured HR and compliance review is one of the most useful steps businesses can take during the transition.
A review of the wage breakup against the 50% rule, gratuity provisioning for fixed-term staff, standing orders applicability, and updated appointment letter templates can help identify major compliance risks.
How LexSphere Is Helping Businesses Through This Transition
LexSphere supports Varanasi employers with:
• Wage structure review against the Code on Wages' 50% rule
• Gratuity liability assessment for fixed-term and contract staff
• Employment agreement and appointment letter updates
• Standing orders and retrenchment threshold assessment
• POSH policy drafting and Internal Committee set-up
• Tracking of Uttar Pradesh's state rule notifications as they're finalised
• Legal notice drafting and dispute response
Given how unevenly the Codes are being rolled out, with central rules finalised and state rules still moving, the safest approach is to treat this as an ongoing review rather than a one-time fix.
We generally start by mapping what's already in place against the new Codes, then prioritise what needs to change first.
Frequently Asked Questions
Are the new Labour Codes actually in force, or still pending?
They are in force, effective 21 November 2025, with the 29 older central laws repealed. Central rules under all four Codes were notified in May 2026. Full practical enforcement still depends on each state notifying its own rules.
Uttar Pradesh has notified final rules for the Industrial Relations Code and the Social Security Code.
Does the 1-year gratuity rule apply to my permanent staff?
No. Permanent employees still need 5 years of continuous service to qualify for gratuity. The 1-year rule is a new entitlement specific to fixed-term and contract employees.
Will the 50% wage rule increase my payroll costs?
It does not necessarily increase total CTC, but it can increase statutory outgo for PF, gratuity, bonus, and leave encashment if basic pay is currently structured below 50% of remuneration.
Employees with basic pay already at or above that level may see little change.
Does the higher standing orders threshold mean small businesses have fewer obligations?
It means fewer businesses fall into the standing orders and prior-permission requirements because the threshold rose from 100 to 300 workers.
Businesses in the 100 to 299 range should note the separate 60-day retrenchment notice period that now applies to them.
Is POSH compliance affected by any of this?
No. The POSH Act, 2013 is a separate statute and was not among the laws consolidated into the four Codes. The 10-employee threshold for a mandatory Internal Committee is unchanged.
What should a Varanasi business do first?
Start with a wage structure review against the 50% rule, then check gratuity provisioning for any fixed-term or contract staff.
These two areas carry significant immediate financial exposure and should be prioritised as part of the transition review.