Hiring in India and the new labour codes

What are the new labour codes?

India merged 29 central labour laws into four Codes: Wages, Industrial Relations, Social Security, and Occupational Safety, Health and Working Conditions. The Government brought all four into force on 21 November 2025.

Final Central Rules were reported as notified on 8 May 2026. States are still notifying their own rules, so the position in the state where you hire may not yet be settled.

If you are hiring for the first time, the practical point is simple. Write your employment terms and payroll around the Codes from day one, not around the old laws, and ask a labour specialist to check state rules before you issue offers.

What changes for a new employer?

The Ministry of Labour’s own handbook on the Codes, together with other reporting, points to these headline effects for a new employer:

• Appointment letters. Employers with 10 or more employees must issue a written appointment letter to every employee, as part of registering under the OSH Code within 60 days of starting operations.
• Fixed-term employees. Fixed-term staff get parity with permanent staff, including gratuity after one year of service.
• Wage payment. The Codes require timely wage payment within a fixed wage period, and wages must be at least the minimum rate notified by the appropriate government. There is no single national floor-wage figure fixed in the Code itself.
• Committees and facilities. A grievance committee applies at 20 or more workers, a crèche at 50 or more workers, and a works committee may be required by the government at establishments with 100 or more workers in the preceding 12 months, though the works committee is not automatic.
• ESIC registration. ESIC registration applies once you have 10 or more employees.
• Wage definition. The Codes use a uniform definition of wages. It may raise the base on which gratuity and provident fund are calculated, and so raise cost.

How do PF, ESI and state levies work?

Incorporation through the combined flow links EPFO and ESIC registration to the company, so a new subsidiary is registered from the start. Under the Social Security Code, EPF registration applies once an establishment reaches 20 or more employees, with the employer and employee each contributing 10% of wages, and ESI registration applies at 10 or more employees, or from the first employee for certain hazardous activities, except seasonal factories.

Professional tax and shops and establishment registration are state matters, and their rules differ by state. Your registered office decides which apply; see our guide to registered office requirements. Tax deducted from salary is also part of payroll, and TDS provisions have been consolidated under the Income-tax Act, 2025.

Employer of record or your own subsidiary?

You have two main routes.

In ProLead’s experience, an EOR suits the first handful of hires, and a subsidiary typically pays off once the team grows into the tens of employees, though the right point depends on the facts of your case.

An EOR does not by itself remove permanent-establishment risk. The risk depends on conduct, such as who signs contracts and where decisions are made. The Codes also raise liability for principal employers where contractors default, so an EOR arrangement needs a proper contract and a compliance review.

Read our comparison of EOR versus subsidiary for the decision in detail, and see ProLead’s payroll and employer of record service if you want a managed option.

What about staff you send from your home country?

It depends on which country you second staff from, since each depends on whether India has a social security agreement with that country and what it covers. The UK is one example: the India-UK Double Contribution Convention came into force on 15 July 2026 and extends the exemption from dual social security contributions for temporary assignments to five years. Check the certificate procedure and eligibility for your home country with a labour specialist before you second staff.

How should you plan your first hires?

1. Decide the vehicle: EOR first, or subsidiary now.
2. Confirm state rules for your hiring location.
3. Prepare appointment letters and a compensation structure that reflects the Codes.
4. Register for provident fund, ESI and any state levies through the company.
5. Add payroll and statutory dates to your compliance calendar.

If you are building a captive centre, see captive versus build-operate-transfer. You can also book a free consultation to test your hiring plan.

Note: Rules and forms change often. This page is general information, not legal or tax advice. Check the current position with a practising Chartered Accountant or Company Secretary before you act.

General information only, not legal or tax advice. Rules and forms change, so confirm the current position with a practising Chartered Accountant or Company Secretary before you act. See our disclaimer.