India's labour law consolidation – a multi-year effort to merge dozens of central statutes into four overarching Labour Codes – has moved from gazette notification to phased enforcement. Foreign employers operating subsidiaries, liaison offices, or project-based entities in India now face concrete compliance obligations that were not present under the earlier, fragmented system. Delayed action carries the risk of penalties, disputes before labour tribunals, and reputational exposure with Indian regulators.
India's consolidated labour legislation, built around four Labour Codes covering wages, industrial relations, social security, and occupational safety, introduces revised rules on employment contracts, termination procedures, and social security contributions. Foreign employers with registered entities in India – regardless of headcount – are required to align their human resources practices with the updated rules. Compliance deadlines are set at the state level, with several major states having issued implementation notifications effective in the first half of 2025.
This alert identifies the regulatory change and its effective scope, explains which business categories are affected and why, and sets out the five immediate actions foreign employers must take now.
What changed and when it takes effect
India's employment law reform consolidates earlier labour legislation into four codes. The Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code collectively replace more than two dozen statutes.
Several Indian states – including Maharashtra, Telangana, Uttar Pradesh, and Rajasthan – have issued state-level rules that bring these codes into operational effect. Effective dates vary by state, but the majority of implementation notifications covering large-employer categories fall within the January to June 2025 window.
The most significant changes for foreign employers include the following. First, the definition of "wages" has been broadened. Allowances above a specified threshold must now be counted as wages for the purpose of calculating provident fund and gratuity contributions under social security legislation. This increases the cost base for employers who previously structured compensation packages to minimise statutory deductions.
Second, termination procedure rules have been tightened for establishments above the applicable headcount threshold. Under the Industrial Relations Code, the requirement to seek government permission before making reductions in workforce. previously applicable only to units above a higher threshold. now applies at a lower employee count in most states. Dismissal notice periods have also been extended for certain categories of worker.
Third, the requirement to formalise employment contract terms – including working hours, leave entitlements, and grievance procedures – has been made explicit. Unwritten or informal arrangements do not satisfy the new compliance standard.
Fourth, social security coverage has been extended. Gig workers and platform workers engaged through digital intermediaries may now fall within the ambit of social security legislation, depending on the nature of the engagement. Foreign employers using third-party staffing or platform-based arrangements in India should re-examine those structures.
For companies regulated by SEBI (the Securities and Exchange Board of India) or subject to oversight by the RBI (Reserve Bank of India). such as foreign bank branches or listed subsidiaries. employment compliance intersects with broader regulatory obligations under financial sector rules. Non-compliance with labour legislation can be flagged during regulatory inspections conducted alongside financial examinations.
To discuss how these changes affect your India employment structure, contact us at info@ferrazwhitmore.com.
Who is affected and what to do now
The updated rules apply to any entity registered or operating in India that employs workers – whether directly or through a contractor. The following business categories face the most immediate exposure.
Subsidiaries and joint ventures incorporated under the Companies Act 2013 are subject to the full scope of the Labour Codes. Parent companies incorporated abroad do not escape liability through the subsidiary structure: Indian labour law applies to the employing entity in India. Additionally. The parent's ultimate control can be relevant to determining "employer" status in certain dispute scenarios before labour courts.
Liaison and project offices authorised by the RBI also employ staff and are subject to the same wage, termination, and social security rules as incorporated entities. Many foreign companies have historically treated these offices as lower-risk from a labour perspective. That position is no longer defensible.
Technology and IT services companies – a significant category of foreign employer in India – face additional exposure on the gig and contract worker provisions, given the sector's widespread use of variable staffing models.
The threshold criteria triggering the most operationally significant rules are as follows. Establishments with ten or more workers are subject to the Occupational Safety, Health and Working Conditions Code in most states. The extended workforce reduction permission requirement under the Industrial Relations Code applies to establishments above a headcount that varies by state, typically in the range of fifty to one hundred workers. Social security obligations under the Code on Social Security apply from the first employee.
Disputes arising from non-compliance may be referred to labour courts or, where applicable, resolved under the Arbitration and Conciliation Act (India's principal arbitration legislation) if the employment contract includes a binding arbitration clause. However, certain statutory employment rights – including social security entitlements and dismissal notice protections – cannot be waived by contract.
The NCLT (National Company Law Tribunal), which handles insolvency and corporate restructuring matters under the Companies Act 2013 framework, has increasingly encountered labour claim questions in restructuring proceedings. Foreign employers managing distressed India operations should note that unpaid wages and social security arrears carry priority status in insolvency proceedings.
For a broader view of how Indian corporate legislation affects foreign-owned entities, see our analysis of corporate law in India.
For a comparison with how similar workforce regulation reforms have unfolded in the Gulf region, see our alert on updated employment regulations in the UAE.
The five immediate actions foreign employers operating in India should take are the following.
- Audit all employment contracts to verify that written terms comply with the new wage definition, leave entitlement, and grievance procedure requirements. Contracts that rely on implied or informal terms must be formalised before the applicable state deadline.
- Recalculate social security contribution bases. The broadened wages definition means that provident fund and gratuity calculations may need to be revised upward. Retroactive underpayment exposure should be assessed and quantified.
- Review workforce reduction procedures. If your India entity is at or near the headcount threshold triggering government permission requirements, document the process and timeline for any planned restructuring before initiating dismissal notice procedures.
- Examine contractor and gig worker arrangements. Determine whether any platform-based or third-party staffing arrangements now fall within the extended social security coverage. Restructuring these engagements may require renegotiating commercial terms with the staffing provider.
- Confirm state-specific effective dates. Because implementation is state-driven, the applicable deadline for your entity depends on the state in which it is registered and operates. Obtain confirmation from local counsel of the precise notification date that governs your establishment.
Engaging a lawyer in India with cross-border employment experience. or an international law firm in India capable of coordinating local counsel across multiple states. is the most reliable way to manage this compliance transition without disruption to operations.
For a tailored strategy on employment law compliance in India, reach out to info@ferrazwhitmore.com.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. Our employment law practice supports foreign employers managing workforce compliance, termination procedures, collective agreement obligations, and cross-border labour restructuring across Asia-Pacific, the Middle East, and CIS markets. Our team combines Portuguese civil law expertise with English common law tradition to deliver practical employment law solutions for international companies operating in high-growth and emerging jurisdictions, including India. The firm's Asia-Pacific practice includes practitioners with experience advising on employment contract disputes and regulatory compliance under Indian labour legislation, working alongside a network of specialist local counsel. We work with multinationals, institutional investors, and in-house legal teams who need results-oriented counsel across multiple legal systems. To discuss your India employment compliance situation, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.