India’s four Labour Codes are in force, but state labour code rules in India are still being finalised, so the same employer can face different procedures in Maharashtra, Karnataka and Rajasthan. This affects MNC subsidiaries, global startups, overseas investors and NRI-promoted businesses alike, whether they entered through company formation in India or expanded later. Startup Solicitors LLP regularly sees clients ask how to stay compliant when the rulebook is only partly written. This guide gives a clear working framework.
Understanding State Labour Code Rules in the Indian Context
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 (OSH) Code, 2020. Together they replace 29 central labour laws. Per government reporting, they came into force in November 2025, and the Centre notified Central Rules on 8 May 2026.
Labour is a Concurrent List subject. For most private employers, such as IT, services, retail and manufacturing, the “Appropriate Government” is the State. Central Rules mainly serve central-sphere establishments, so a state’s own rules decide registrations, returns, inspections and forms for everyone else.
Status as reported in late September 2026: the Union Labour Secretary said about ten states had published final rules, most others had draft rules, and the Centre expected all states and Union Territories to finish by 31 October 2026. Treat this as a moving target and verify before acting.
Legal Framework and Regulations in India
| Layer | What it governs | Authority |
|---|---|---|
| Four Labour Codes | Wages, industrial relations, social security, workplace safety | Ministry of Labour and Employment |
| Central Rules (May 2026) | Procedure for central-sphere establishments | Central Government |
| State Rules | Registration, returns, inspections, forms for state-sphere employers | State Labour Departments |
| Shops and Establishments Acts | Working hours, leave, opening times | State governments (separate from the Codes) |
| Corporate and FEMA laws | Entity structure, remittances, director duties | MCA, RBI |
Foreign entities should also align labour compliance with corporate governance obligations and FEMA and RBI requirements, because payroll, expatriate pay and intra-group charges touch all three.
Key obligations that apply under the Codes, even where state procedure is pending:
- Wages on exit (dismissal, resignation, retrenchment) must be paid within two working days.
- Fixed-term employees are recognised and become eligible for gratuity after one year.
- The wage definition changes, so allowances above a set share of total remuneration are added back for contribution calculations.
- Women may work night shifts with consent and safety measures.
Step-by-Step Process: Operating Across Multiple States
- Map each establishment. List every office, plant, warehouse and remote hub by state, headcount and activity. Determine whether the Appropriate Government is the Centre or the State.
- Create a state-wise rule tracker. For each Code and state, record: final rules notified, draft only, or nothing yet.
- Apply the Code now, rules when notified. Statutory duties such as the two-day settlement apply regardless of pending forms.
- Use the Central Rules and draft state rules as a benchmark. They indicate where states are likely to land.
- Reset payroll and contracts. Re-test wage structures, fixed-term contracts and exit processes. Payroll management support helps here.
- Keep a legacy-law fallback. Where a state has not completed transition, preserve records and registrations under existing licences and registers.
- Record every decision. Written interpretation notes protect you during inspections.
Entity-specific considerations
| Profile | Key point |
|---|---|
| Indian residents (promoters, directors) | Personally exposed as “occupier” or officer-in-default for safety and wage defaults |
| NRIs | Check that resident director and FEMA conditions are met when running a private limited company |
| Foreign companies | Subsidiaries are treated as Indian employers, while branch and liaison offices face tighter activity limits |
| Global startups | Remote hires in several states may trigger registrations in each state |
| Overseas investors | Ask for a state-wise labour compliance statement in due diligence |
Key Challenges and Practical Issues
- Patchwork timing: one state may be fully operational while another has only a draft.
- Overlap with Shops and Establishments Acts: working hours, overtime and leave limits still come from state laws, so conflicts must be read together.
- Registration uncertainty: portals, thresholds and forms differ, and some are not yet live.
- Documentation gaps: appointment letters, wage slips and exit processes often follow the old regime.
- Expatriate staff: employment visas and social security treatment need separate review.
- Common mistake: waiting for final rules before making any change, which leaves substantive duties unmet.
Strategic Insights and Expert Recommendations
- Comply with the stricter standard. Where two states differ, a policy meeting the higher requirement reduces rework.
- Centralise governance, localise execution. One global policy with a state annexure works better than separate manuals.
- Build a rules-change protocol. Assign an owner to review each new state notification within a fixed number of days.
- Budget for payroll and cost impact. The wage definition and gratuity changes can raise cost of employment.
- Use licensing and approvals as checkpoints. Link labour compliance to licenses and regulatory approvals and the wider taxation and compliance framework.
- Protect people data. Employee records also fall under India’s data protection regime. See DPDPA compliance.
For group structuring, see guidance on business setup in India for foreign nationals and corporate law advisory. Startups can check eligibility via DPIIT.
Conclusion
Incomplete state labour code rules in India do not suspend your duties. They change how you document, register and report. Treat the Codes as binding, use Central Rules as a guide, track each state, and record your reasoning. Whether you are planning company setup in India or running a multi-state operation, a structured tracker and a conservative policy keep you inspection-ready. For a tailored review, you can contact Startup Solicitors LLP.
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Disclaimer: This article is for general information, not legal advice. Rule status changes quickly; verify with official notifications.
3. FAQs
1. Are the Labour Codes in force in India in 2026?
Yes. Government reporting says the four Codes came into force in November 2025, and Central Rules followed on 8 May 2026. However, many practical procedures depend on state rules, which are being notified in stages across states and Union Territories.
2. Why do state rules matter for foreign companies?
Labour is a Concurrent List subject, and for most private employers the State is the Appropriate Government. State rules set registration, returns, inspection and form requirements, so a foreign subsidiary working across states must follow each state’s version.
3. What if my state has not notified its rules yet?
Substantive duties under the Codes, such as paying dues within two working days of exit, still apply. Keep existing registrations active, follow Central Rules and draft state rules as guidance, and document your compliance approach.
4. Do Shops and Establishments Acts still apply?
Yes. These are separate state laws covering working hours, overtime, leave and opening times. Employers must read them alongside the Labour Codes, and where limits differ, the stricter practical standard is the safer option.
5. Can NRIs or global startups hire in several states easily?
They can, but each state where employees work may create registration and payroll duties. Mapping headcount by state, verifying entity structure and checking state rule status before hiring reduces compliance risk.