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India's new Labour Codes: Impact on compensation structure and benefits

November 26, 2025

India’s new labour codes effective November 21, 2025, redefine wages, impact retirement benefits, health programs, and insurance—employers must act now to stay compliant.
Retirement|Health and Benefits|Employee Wellbeing|Total Rewards|Compensation Strategy & Design|Work Transformation
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After almost a five-year wait, the new Labour Codes in India have finally been implemented, effective November 21, 2025. This represents one of the most significant reforms in recent years, aiming to simplify and harmonize labour laws across the country. While some operational procedures are still being framed, companies must begin their transition process immediately.

At WTW, we have prepared a detailed note that provides a refresher on some of the key changes and outlines the likely implications for compensation structures, retirement benefits, group health, and other employee benefits. Our insights are drawn from extensive experience working with leading companies and comprehensive survey responses.

Key implications and insights:

  • New definition of "Wages": The uniform and broadened definition of "wages" is now applicable to all employees, not just those below a certain threshold. This will require companies to fundamentally reassess their compensation design.
  • Impact on retirement benefits (Gratuity): The new definition of wages will significantly increase gratuity liabilities, potentially impacting prior service as well.
  • Basic salary & remuneration: Clarification that "wages" can be higher than 50% of remuneration, and basic salary itself does not necessarily need to increase to 50% to comply.
  • Fixed-term employees: Fixed-term employees are now eligible for pro-rata statutory benefits, including gratuity, without the 5-year service condition.
  • Leave encashment: The Occupational Safety, Health and Working Conditions (OSH) Code links annual leave and encashment to the new definition of wages, potentially increasing long-term leave liabilities.
  • Employee health and wellbeing: Mandatory annual health check-ups for workers over 40 years of age, broadened ESIC coverage, and enhanced health safety standards are now in effect.
  • Group term life and personal accident programmes: Universal social security now extends to gig, platform, and unorganized sector workers, requiring expanded group insurance coverage.

Our recent State of Retirement Survey 2024 revealed that while about 50% of companies have assessed the financial impact, many are still determining how to adjust their compensation structures. This note aims to provide clarity and guidance during this transition.

To understand the full scope of these changes and their potential impact on your organization, we encourage you to read our comprehensive note available in the Download PDF section.

For more information, please reach out to your WTW consultant or write to us at wtwindia@wtwco.com.

Disclaimer

This note should not be considered as formal legal or tax advice. This view is subject to the interpretation of the concerned regulatory authorities.


Download the PDF

Contacts


Varun Jain
Head of Retirement, India
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Head – Work and Rewards India and Strategic Sales Growth Leader International, Work and Rewards, WTW
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Head of Health and Benefits, India
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Director and Head of Business Development, Retirement, India
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Rewards Leader – India
Willis Towers Watson
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Head of Advisory, Health and Benefits, India
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