Understanding the new labour code is now essential for every Indian employer, since it replaces decades of fragmented rules with a single consolidated framework. The Industrial Relations (IR) Code, 2020, one of four labour codes that came into effect on 21 November 2025, governs fixed term employment, standing orders, and related compliance obligations that directly affect how businesses hire, document, and manage their workforce.
Why the IR Code Matters
The IR Code consolidates three older laws: the Industrial Disputes Act, 1947, the Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946. This replaces a system where employers previously had to track 29 separate central labour laws, often with overlapping and contradictory requirements. Central rules under the IR Code, along with the Wages and Social Security Codes, were notified on 8 May 2026, giving the framework practical operational force, though state governments continue notifying their own rules separately since labour remains a concurrent subject.
Fixed Term Employment Rules Under the New Labour Code
Fixed term employment is now formally recognised as a distinct employment category under the IR Code, allowing employers to hire workers for a specific, defined period without the earlier restrictions that discouraged such arrangements.
Key protections built into this framework include:
- Parity with permanent employees: fixed term workers must receive the same wages, working hours, and statutory benefits as permanent employees performing similar work.
- Pro-rata gratuity after one year: unlike permanent employees who typically need five years of continuous service for gratuity eligibility under the Payment of Gratuity provisions now housed within the Social Security Code, fixed term employees become eligible for gratuity on a pro-rata basis after completing just one year.
- No retrenchment compensation on natural expiry: since the contract ends on a pre-agreed date, it is not treated as retrenchment, so separate retrenchment compensation does not apply.
Standing Orders Applicability
Standing orders are the formal rules governing conditions of employment, such as classification of workers, leave, and disciplinary procedure, that larger establishments must formally adopt and display.
Under the earlier Industrial Employment (Standing Orders) Act, 1946, this requirement typically applied to establishments with 100 or more workers in most states. The IR Code raises this threshold to establishments employing 300 or more workers, giving mid-sized businesses more flexibility and lower compliance burden. Establishments below this threshold can adopt simplified Model Standing Orders instead of drafting and certifying their own.
Single Window Registration
The new framework introduces single window registration, meaning one unified registration process covers obligations that previously required separate registrations under laws like the Factories Act, 1948, and the Contract Labour (Regulation and Abolition) Act, 1970. This is designed to reduce paperwork duplication and centralise compliance tracking across the four codes.
Appointment Letters Made Mandatory
A significant shift under the IR Code is the mandatory issuance of appointment letters to every employee, including those in the informal sector who previously often worked without formal documentation. This formalises the employment relationship and gives workers documented proof of their terms of service, wages, and designation.
Contract Labour Parity Rules
For contract workers performing the same or similar work as regular employees within an establishment, the IR Code requires wage parity between the two categories. This addresses a long-standing gap where contract labour was often paid less for comparable work despite similar job functions.
Old Law vs New Code: Quick Comparison
| Aspect | Earlier Position | Position Under IR Code |
|---|---|---|
| Standing orders threshold | 100 or more workers (most states) | 300 or more workers |
| Fixed term employment | Limited recognition, inconsistent protection | Formally recognised with parity rights |
| Gratuity for fixed term workers | Generally required 5 years service | Pro-rata after 1 year |
| Registration | Multiple separate registrations | Single window registration |
| Appointment letters | Not uniformly mandatory | Mandatory for all employees |
Compliance Flow for Employers
Registration under single window system leads to appointment letters issued to all employees leads to standing orders adopted or Model Standing Orders followed based on worker count leads to wage structures aligned for parity leads to ongoing payroll and documentation compliance.
Penalties for Non-Compliance
The IR Code prescribes financial penalties for contraventions, with amounts varying based on the nature of the violation, and repeated non-compliance can attract higher fines. Employers are encouraged to correct violations proactively, since the Code also introduces an Inspector-cum-Facilitator system focused on compliance guidance rather than only punitive action.
FAQs
Any employee hired for a specific, pre-agreed period, across sectors, provided the terms comply with IR Code parity requirements.
Yes, the 300-worker threshold applies uniformly, though state-specific rules may add procedural detail.
Establishments covered under the four labour codes are expected to use this unified system as state rules become operational.
No, since contract expiry is not treated as retrenchment under the Code.
Yes, this is one of the Code’s key formalisation goals.
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