In short: India’s Labour Codes termination notice pay India rules changed materially on 21 November 2025, when all four Labour Codes came into force, repealing 29 central laws. The headline shift for most SMEs is a raised threshold for prior government permission on retrenchment — now 300 workers, up from 100 — while the core one-month notice and fifteen-days-per-year compensation obligations remain.
Key points
- All four Labour Codes — the Code on Wages 2019, the Industrial Relations Code 2020, the Code on Social Security 2020, and the Occupational Safety, Health and Working Conditions Code 2020 — came into force on 21 November 2025, with a corrigendum issued on 19 December 2025. The 29 central laws they replaced stand repealed.
- The Central Rules under all four Codes were notified on 8 May 2026. However, they apply only where the central government is the “appropriate government”; most private-sector employers will need to check whether their state has notified its own rules, and over 30 states and UTs had done so for at least one Code by mid-2026.
- The prior-permission threshold for retrenchment has been raised to 300 workers. Below that number, employers do not need government permission — but the one-month notice (or wages in lieu) and retrenchment compensation of fifteen days’ average pay per completed year of continuous service still apply to workers with at least one year of continuous service.
- Establishments with fewer than 50 workers are exempt from the notice requirement and need only pay retrenchment compensation; those between 50 and 299 workers must give notice or notice pay plus compensation; those at 300 and above must also obtain prior government permission.
- Termination as punishment through disciplinary action is expressly excluded from the definition of retrenchment — so a dismissal for misconduct following a proper inquiry sits outside these thresholds.
- No transitional period was built into the implementing notifications, meaning employers were expected to comply from 21 November 2025 onward, even though the practical framework is still bedding in across states.
What are the four Labour Codes and when did they take effect?
The Government of India announced that all four Labour Codes came into effect on 21 November 2025. That single notification date replaced a fragmented landscape of 29 central laws that had governed wages, industrial relations, social security, and occupational safety separately for decades.
The four Codes are: the Code on Wages 2019, the Industrial Relations Code 2020, the Code on Social Security 2020, and the Occupational Safety, Health and Working Conditions Code 2020. Together, they aim to simplify and harmonise labour regulation for employers of all sizes.
A corrigendum was issued on 19 December 2025, but the substance of the commencement remained the same. Importantly, the implementing notifications did not provide any transitional period — compliance was expected immediately.
Are the rules actually in force where your business operates?
Labour is a Concurrent List subject under the Constitution, meaning both Parliament and state legislatures can legislate on it. The Central Rules under all four Codes were notified on 8 May 2026 and apply only where the central government is the “appropriate government” — broadly, central-government establishments and certain specified industries.
For the vast majority of private-sector SMEs, the relevant rules will be those notified by your state government. As of mid-2026, over 30 states and UTs had notified rules for at least one Code, but no single pan-India commencement date covering all states had been announced. If your state has not yet notified rules under a particular Code, the relevant provisions of the old Acts and their rules continue to remain in force in the interim.
The practical takeaway: check with a qualified advocate or your state’s labour department to confirm which set of rules governs your establishment right now. For plain-language summaries of your rights and obligations under Indian employment law, the Law for You guides on The Courtroom are a useful starting point before you go deeper into the primary sources.
How do Labour Codes termination notice pay rules work in practice?
The one-month notice rule
Under the Industrial Relations Code 2020, no worker who has been in continuous service for at least one year can be retrenched unless they have been given one month’s written notice stating the reasons for retrenchment, and that notice period has expired — or they have been paid wages in lieu of notice for that period.
This is not new in principle; the requirement existed under the old Industrial Disputes Act. What matters is that it has been carried forward and now applies within the consolidated framework of the IR Code.
Retrenchment compensation
Alongside notice or notice pay, an employer must pay retrenchment compensation equivalent to fifteen days’ average pay for every completed year of continuous service, or any part thereof in excess of six months. Both the notice obligation and this compensation requirement continue under the new Codes.
The new 300-worker threshold
The most significant structural change for larger SMEs and mid-size companies is the prior-permission threshold. Under the old law, establishments with 100 or more workers needed prior government permission before retrenching. The IR Code raises that figure to 300 workers. The table below sets out how the three bands work:
| Establishment size (workers) | Prior government permission required? | One month’s notice or notice pay required? | Retrenchment compensation required? |
|---|---|---|---|
| Fewer than 50 | No | No | Yes (for workers with ≥ 1 year continuous service) |
| 50 to 299 | No | Yes | Yes (for workers with ≥ 1 year continuous service) |
| 300 and above | Yes | Yes | Yes (for workers with ≥ 1 year continuous service) |
Employers in the 100–299 worker band gain the most from this change: they no longer need to apply for government permission before retrenching, though the notice and compensation obligations remain firmly in place.
What about dismissal for misconduct?
Termination as punishment by way of disciplinary action is expressly excluded from the definition of retrenchment under the IR Code. This means a dismissal following a proper domestic inquiry for proven misconduct does not trigger the retrenchment notice, compensation, or permission requirements. That said, the principles of natural justice and your own standing orders still apply to disciplinary dismissals — the exclusion from retrenchment is not a free pass.
What has changed on gratuity?
Gratuity is governed by the Code on Social Security 2020. The fact sheet verified for this article does not include specific new gratuity figures or a revised vesting period that differ materially from the prior position, so we have not stated any here. Check the Code on Social Security 2020 and the Social Security (Central) Rules 2026 (notified 8 May 2026) directly, or consult a qualified advocate, to confirm the current gratuity formula and eligibility threshold applicable to your establishment.
What should HR managers and founders do right now?
First, confirm whether your state has notified rules under each of the four Codes. If it has not, the old Acts continue to apply for that Code in your state — which means you may be running two parallel frameworks simultaneously depending on the subject matter.
Second, audit your standing orders, employment contracts, and HR policies against the IR Code’s definitions of worker, continuous service, and retrenchment. The scope of who qualifies as a “worker” under the new Codes is broader than under several of the old laws.
Third, review your retrenchment procedures in light of the new 300-worker threshold. If you were previously in the 100–299 band and had prior-permission obligations, those have now fallen away at the central level — but double-check your state rules before acting on that assumption.
Finally, given that no transitional period was built in, any retrenchment carried out after 21 November 2025 should be assessed against the IR Code’s requirements, not the old Industrial Disputes Act.
Frequently asked questions
Do the Labour Codes apply to my business right now?
All four Labour Codes came into force on 21 November 2025. However, because labour is a Concurrent List subject, the rules that govern your day-to-day obligations depend on whether your state has notified its own rules under each Code. Over 30 states and UTs had done so for at least one Code by mid-2026, but coverage is not yet uniform across all four Codes or all states. Where state rules are not yet in place, the relevant provisions of the old Acts remain in force. Check with your state’s labour department or a qualified advocate to confirm the current position for your establishment.
Has the notice period for retrenchment changed under the new Labour Codes?
The notice requirement itself — one month’s written notice or wages in lieu — has not changed for workers with at least one year of continuous service. What has changed is the threshold at which prior government permission is also required: this has been raised from 100 workers to 300 workers. Establishments with fewer than 50 workers remain exempt from the notice requirement but must still pay retrenchment compensation.
Does a dismissal for misconduct count as retrenchment under the IR Code?
No. The Industrial Relations Code 2020 expressly excludes termination as a punishment by way of disciplinary action from the definition of retrenchment. This means a dismissal following a proper domestic inquiry for misconduct does not attract the one-month notice, retrenchment compensation, or prior government permission requirements. However, the principles of natural justice and any applicable standing orders still govern the disciplinary process itself.
Primary sources
- India Code — full text of the Industrial Relations Code 2020, Code on Social Security 2020, Code on Wages 2019, and OSHWC Code 2020
- Ministry of Labour and Employment — official notifications, FAQs, and the Central Rules notified on 8 May 2026
- Press Information Bureau — government press releases on Labour Code commencement
Written by Editorial Team, The Courtroom · Last verified 2026-07-14
This article is for general information only and is not legal advice. Laws change; verify against the primary sources cited and consult a qualified advocate for your situation.
