Research & Study

A ROAD MAP FOR TRANSITIONING FROM THE OLD LABOUR LAWS TO 
THE NEW LABOUR CODES
 

Merges 9 Central Labour Laws, including: EPF Act, 1952, ESI Act, 1948 ,Payment of Gratuity Act, 1972 Maternity Benefit Act, 1961 etc. Objective: One law – one registration – one return (conceptually).

FAQ on OSH&WC Code, 2020

FAQs regarding Maternity Benefit Provisions, Gratuity Rules, etc

The Ministry of Labour and Employment has issued Compliance Handbook for Employers Under the Four Labour Codes. please refer the compliance handbook for more details. 

Merges 9 Central Labour Laws, including: EPF Act, 1952, ESI Act, 1948 ,Payment of Gratuity Act, 1972 Maternity Benefit Act, 1961 etc. Objective: One law – one registration – one return (conceptually).

The Industrial Relations Code, 2020 [Act No. 35 of 2020] consolidates 3 legislations, namely

The Trade Unions Act, 1923;

The Industrial Employment (Standing Orders) Act, 1946 ;

The Industrial Disputes Act, 1947

With the Central Government notifying the implementation of the Four Labour Codes w.e.f. 21 November 2025, employers across sectors are required to realign their wage structures, HR policies, payroll systems, and statutory compliances. Any delay or misinterpretation may lead to significant financial liabilities, penalties, and litigation.

The Occupational Safety, Health & Working Conditions Code, 2020 consolidates and amends thirteen (13) existing Central labour laws relating to the safety, health, and working conditions of persons employed in various establishments. The Code seeks to rationalize and simplify regulatory compliances while providing a comprehensive statutory framework governing workplace safety standards, health measures, and employee welfare.

Perfectly definitions and responsibility of Employer to ensure the Social Security benefits of employees.

The ICAI has officially classified the increase in employee benefit liabilities (due to the 50% wage rule) as a 'Plan Amendment' (Past Service Cost). Under Ind AS 19, this necessitates immediate recognition.

Therefore, it is highly advisable to obtain an Interim Actuarial Report for Q3 (Dec 2025) to absorb the initial financial impact and align with statutory interim reporting. This should then be followed by a Final Actuarial Valuation in Q4 (Mar 2026) to adjust for year-end variables and provide a certified closing balance for your annual audit."

A formal FAQs recently released by the Institute of Chartered Accountants of India (ICAI) on December 26, 2025.

As anticipated, the implementation of these Codes (effective November 21, 2025) significantly alters how employee benefit liabilities—specifically Gratuity and Leave Encashment—must be valued and reported.

The following insights summarize the key reporting obligations under the new ICAI framework. While these reflect the current statutory requirements, they are subject to change pending any supplemental instructions or circulars from the Ministry of Labour or the ICAI.

1. The "50% Wage Rule" & Valuation Base

The new definition of "Wages" (Basic + DA + Retaining Allowance + or other such components) must now constitute at least 50% of the total remuneration.

• Actuarial Impact: If your current salary structure has a wage base lower than 50%, the actuary must now use the higher "deemed wage" for all future projections. This will lead to an immediate increase in your Defined Benefit Obligation (DBO).

2. Immediate Recognition of Costs (No Deferral)

The ICAI has clarified that the increase in liability is a "Plan Amendment" (Past Service Cost).

• Accounting Requirement: Under Ind AS 19 and AS 15, this additional cost must be recognized immediately in your Statement of Profit and Loss for the current period.
• Q3 Reporting: For the quarter ended December 31, 2025, companies are required to reflect this higher obligation in their interim results. It cannot be deferred to the year-end.

3. Gratuity for Fixed-Term Employees (FTEs)

• Expanded Eligibility: Unlike permanent employees (5-year rule), FTEs and contract staff are now eligible for gratuity after just one year of service.
• Financial Impact: This expands the pool of employees requiring an actuarial provision, likely increasing your overall gratuity liability.

4. Presentation as an "Exceptional Item"

Due to the material and non-recurring nature of this legislative change, companies may present this one-time expense as an "Exceptional Item" in the P&L. This ensures that the impact on your bottom line is clearly distinguished from regular operational costs.

Recommended Next Steps

To ensure compliance for your Q3 audit, we recommend the following:

1. Coordinate with your Actuary: Provide them with the revised salary data based on the 50% threshold for a fresh valuation.
2. Audit Consultation: Align with your statutory auditors on the disclosure notes and the classification of the expense.
3. Deferred Tax Assessment: Evaluate the recognition of Deferred Tax Assets (DTA), as these provisions will result in tax benefits at the time of future payment.

The ICAI FAQ document is attached for your detailed reference: https://resource.cdn.icai.org/90049asb-faq-nlc.pdf

Our team at IndiThinkk is ready to assist you in generating the necessary reports and data exports required for this re-valuation. Please let us know if you would like to schedule a brief call to discuss the financial impact specific to your organization.

1. Wages

• Defined uniformly across all codes

• Excludes specified allowances (e.g., HRA, bonus, overtime), subject to a 50% cap

• Prevents artificial wage structuring to reduce statutory benefits

2. Employee

• Broad and inclusive definition covering supervisory, managerial (subject to wage thresholds), and contractual workers

3. Worker

• Clarified distinction from “employee” for industrial relations purposes

4. Employer

• Includes contractors, principal employers, and digital platform aggregators where applicable

5. Establishment

• Unified definition covering factories, offices, service providers, and commercial entities

6. Gig Worker / Platform Worker

• Newly defined categories recognizing non-traditional employment relationships

7. Fixed-Term Employee

• Employee engaged for a specified period with equal statutory benefits