India's 2025 Labour Codes: what changed for foreign employers

On 21 November 2025, India activated four Labour Codes that consolidate 29 prior labour laws: the Code on Wages, the Code on Social Security, the Industrial Relations Code, and the Occupational Safety, Health and Working Conditions Code. For a foreign company hiring engineers in India through an EOR, the operational impact lands on three things: CTC structure, statutory outflow, and the rules around offboarding.

Status: The codes are in force from 21 Nov 2025; central rules were issued in draft on 30 Dec 2025 and are finalizing through 2026, with state-level rules still being notified — we track changes as they land.

The single most material change is the “50% rule”: basic wages plus Dearness Allowance must be at least 50% of total CTC. That raises PF and gratuity outflow for almost every senior-engineer offer issued under pre-Nov-2025 templates.

The 50% rule, mechanically

Under the Code on Wages, “wages” has a new statutory definition. Excluded components (HRA, conveyance, certain allowances) cannot push the “wages” portion below 50% of CTC. Because PF (12% employer share) and gratuity (4.81% accrual) are calculated on (basic + DA), this floor lifts the statutory loadings.

Illustrative only — actual CTC structures vary by employer and elections; this is a worked example to show the mechanics, not a benchmark. For a ₹22,00,000 senior engineer CTC:

Component	Pre-Nov-2025 (illustrative)	Post-Nov-2025 (Codes)
Basic + DA	₹8,80,000 (40%)	₹11,00,000 (50%)
Employer EPF (12% of basic + DA)	₹1,05,600	₹1,32,000
Gratuity accrual (4.81% of basic + DA)	₹42,328	₹52,910
Total statutory loading	₹1,47,928	₹1,84,910

In this illustrative scenario the delta is roughly ₹37,000 per engineer per year. Real-world deltas depend on what your pre-Nov-2025 structure actually was.

What it means for new offers

Three changes baked into every contract TWF Labs issues:

Recalibrate basic + DA to ≥ 50% of CTC by default, then layer HRA and allowances on top.
Disclose the higher statutory outflow to the engineer in the offer letter so net take-home doesn't surprise them.
Adjust gross-to-CTC math on the foreign side so the headline number a founder sees is the loaded cost, not just the gross.

What it means for existing engineers

Existing contracts issued before 21 November 2025 should be reviewed. The Codes have transitional grace, but a contract that materially under-reports basic + DA is a future audit risk. Quietly restructure the next CTC revision (typically appraisal) onto the new mechanics.

Other notable changes

Single-window registration. Multi-state employers consolidate registrations across PF, ESI, and Shops & Establishments — less filing friction.
Gratuity for fixed-term employees. Fixed-term contracts of ≥ 1 year now accrue gratuity proportionally — relevant if you hire on time-bound contracts.
Working hours. A 48-hour cap with overtime rules. For salaried senior engineers this is largely unchanged in practice.
OSH Code. Mostly applies to physical workplaces, not remote engineering teams, but the threshold for “establishment” coverage shifted.

How the codes are described

Legal and advisory firms broadly describe the 2025 Labour Codes as the most significant overhaul of Indian labour regulation in decades, requiring employers to review compensation structures, employment contracts, and worker classifications.

What to do this quarter

Re-model your top three pending India offers under the 50% rule.
Run the cost calculator with your real numbers — it's already on the post-Nov-2025 math.
Ask your EOR (or your in-house team) for a written confirmation that all new contracts are on the new structure.

Sources

Primary (government):

Supporting (law / advisory firms):