Labour and Employment Law
The Four Labour Codes and Their Rules: A Complete Guide for Karnataka's Manufacturing Sector
Incorporating all four sets of Central Rules notified on 8 May 2026, the Model Standing Orders 2026, and Karnataka State Rules.
Introduction
On 21 November 2025, the Ministry of Labour and Employment notified India's four Labour Codes, the Code on Wages, 2019 (Wage Code); the Industrial Relations Code, 2020 (IR Code); the Code on Social Security, 2020 (SS Code); and the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code), bringing one of the most sweeping overhauls of Indian employment regulation since Independence into force. These four Codes consolidate 29 Central labour laws into a unified framework, repealing foundational statutes such as the Factories Act 1948, the Industrial Disputes Act 1947, the Payment of Wages Act 1936, the Minimum Wages Act 1948, the EPF and MP Act 1952, the ESI Act 1948, the Payment of Gratuity Act 1972, the Contract Labour Act 1970, and the Trade Unions Act 1926, among others.
On 8 May 2026, the Central Government completed a further landmark step by notifying the final Central Rules under all four Labour Codes this development operationalises nearly all provisions of the new labour framework that fall within the central government’s administrative jurisdiction. The Central Rules are accompanied by the Model Standing Orders 2026 for the mining, manufacturing and services sectors. This publication reflects these latest developments in full.
For Karnataka's manufacturing sector, encompassing everything from large automotive and aerospace plants to mid-sized garment, pharmaceutical, and precision engineering units across the state, the implications are both immediate and structural. This article explains what the four Codes and their Rules mean in practice, and what manufacturers must do now.
Legislative and Rules Status as of 9 May 2026
The Central Government has notified Rules under all four Labour Codes, substantially operationalising the central labour law framework, while state level implementation continues to evolve. Karnataka subsequently published draft rules in January 2026 under the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020 to align the State framework with the evolving Labour Codes regime. Following the notification of the Central Rules on 8 May 2026, Karnataka’s final rules under the Codes are still awaited.
Current Status
Code on Wages, 2019
Central Rules notified on 8 May 2026. Karnataka draft Rules were issued in January 2026; revised Rules are awaited.
Industrial Relations Code, 2020
Central Rules and Model Standing Orders notified on 8 May 2026. Karnataka Rules are awaited.
Code on Social Security, 2020
Central Rules notified on 8 May 2026. Karnataka Rules are awaited.
OSH Code, 2020
Central Rules notified on 8 May 2026. Karnataka draft Rules were issued in January 2026; final Rules are awaited.
Note for Karnataka Manufacturers
Since labour falls on the Concurrent List of the Constitution, both Central and State rules apply and operate concurrently. For establishments where the State Government is the 'appropriate government' (which includes most private manufacturing units in Karnataka), State rules govern procedural matters. The Central Rules provide the substantive framework and serve as the baseline reference for States finalising their own rules. Karnataka manufacturers should continue monitor the Karnataka Labour Commissioner's Karmika Spandana portal for final notifications under the OSH Code and SS Code.
1. The Code on Wages, 2019
Overview
The Wage Code consolidates four earlier statutes, the Minimum Wages Act 1948, the Payment of Wages Act 1936, the Payment of Bonus Act 1965, and the Equal Remuneration Act 1976. It establishes a uniform definition of wages applicable across all four Labour Codes, introduces universal minimum wage coverage, and introduces a statutory cap on excluded allowances under the definition of wages that has immediate payroll implications for manufacturers.
Key Provisions
The 50% Wage Rule
Section 2(y) of the Wage Code defines 'wages' to include basic pay, dearness allowance, and retaining allowance. If other allowances such as, HRA, conveyance, special allowances, food coupons, mobile recharge, and similar items together exceed 50% of total remuneration, the excess is deemed wages.
The practical effect is that excluded components of remuneration cannot exceed 50% of total remuneration for the purpose of wage computation and thus the wage base for computation of statutory benefits would be at a minimum of 50% of the entire remuneration. This directly increases the base on which PF, ESI, gratuity, bonus, and overtime are calculated, materially raising the statutory employment cost for most manufacturers operating legacy salary structures.
The March 2026 Ministry FAQs explained that in-kind benefits under terms of employment such as food coupons, ration items, and mobile recharges where such benefits are expressed or implied may constitute ‘remuneration in kind’ for the purpose of 50% calculation under the definition of wages, but only up to 15% of total wages is counted toward the wages figure, with any excess treated as allowances. Annual performance-linked payments that are not part of the regular remuneration structure are excluded from the wage definition under the final Rules.
Universal Minimum Wage
The Wage Code removes the old concept of 'scheduled employments,' under which minimum wage protection applied only to notified categories of work. Every worker in every sector is now covered.
Karnataka structures minimum wages by skill category (unskilled, semi-skilled, skilled, and highly skilled) and geographic zone (Zone I covering specified urban areas including BBMP limits, Zone II covering other notified urban areas, Zone III covering district headquarters not falling within Zones I and II, and Zone IV covering all remaining areas of the State). Variable Dearness Allowance (“VDA”) is revised twice yearly based on the Consumer Price Index for Industrial Workers, with Karnataka's most recent revision effective from 1 April 2026.
Equal Pay and Bonus
The Wage Code mandates equal remuneration for equal work irrespective of gender, carrying the principle of the erstwhile Equal Remuneration Act 1976 forward with statutory force. The Wage Code also consolidates the bonus framework previously governed by the Payment of Bonus Act 1965: workers who complete at least 30 days of work in an accounting year remain eligible for bonus, further the rules clarify that where contract labour is engaged through a contractor, the principal employer bears responsibility contractor default, consistent with contract labour compliance principles.
The Code on Wages (Central) Rules, 2026 - Notified 8 May 2026
The Wage Code Central Rules, notified on 8 May 2026, operationalise the Code's substantive provisions. Key features for manufacturers are:
Minimum wages and VDA: Fixation and revision framework for minimum wages is prescribed, with VDA to be revised twice a year based on the Consumer Price Index for Industrial Workers.
Overtime Statutory cap: The Rules retain the statutory framework of an 8-hour working day and a 48-hour working week. A worker cannot be required or permitted to work overtime in excess of 144 hours in any quarter. In addition, the Rules prescribe mandatory rest intervals and regulate the “spread-over” of working hours, i.e., the total period between the commencement and cessation of work, inclusive of rest intervals.
Overtime calculation: Where workers perform overtime beyond prescribed working hour limits under applicable law, overtime wages are payable at twice the ordinary rate of wages, payable at the end of each wage period. For rounding purposes, 15–30 minutes of overtime counts as 30 minutes; more than 30 minutes counts as a full hour.
Daily wage computation: For monthly-paid workers, the daily wage is calculated as 1/26th of the monthly wage, a formula relevant for overtime, leave encashment, and gratuity purposes.
Digital compliance: Employers may maintain wage registers, wage slips, overtime records, attendance registers, and notices in electronic formats. Records must be preserved for five years.
Principal employer bonus liability: The Rules recognises the liability of the principal employer to ensure minimum statutory bonus is paid to contract workers where a contractor defaults.
Standardised formats: Formats for wage registers, wage slips, salary registers, attendance registers, and employee registers have been standardised and prescribed.
Nomination framework: A formal nomination framework for employees with respect to wage-linked entitlements has been introduced.
Karnataka Manufacturers' Action Point - Wage Code
Karnataka issued draft Wage Rules in January 2026. Conduct an immediate payroll audit to ensure wages constitute at least 50% of total remuneration for all categories of workers. Restructure CTC bands to comply, and recompute PF, ESI, gratuity, and bonus bases accordingly. Update wage registers and wage slip to the prescribed digital formats. Note that certain in-kind benefits capable of monetary valuation may need to be considered while applying the 50% wage threshold.
2. The Industrial Relations Code, 2020
Overview
The IR Code consolidates three foundational statutes: the Trade Unions Act 1926, the Industrial Employment (Standing Orders) Act 1946, and the Industrial Disputes Act 1947. It introduces meaningful changes to standing orders, dispute resolution, collective bargaining, and retrenchment thresholds and is accompanied by the newly notified Model Standing Orders 2026 specifically covering the manufacturing sector.
Key Provisions
Standing Orders - Raised Threshold and Model Orders
Under the old framework, industrial establishments employing 100 or more workers were required to frame and certify standing orders. The IR Code raises this threshold to 300 workers, giving small and mid-sized manufacturing units the flexibility to govern service conditions through employment contracts, HR policies and internal service rules rather than formally certified standing orders.
A Karnataka-specific note: IT and ITES establishments in the state have historically held a conditional exemption from the standing orders requirement, most recently extended until June 2029. The continued operation of existing Karnataka IT/ITES exemptions may depend on transitional notifications and fresh exemptions issued under the IR Code framework.
Retrenchment, Layoff and Closure
The threshold for prior government approval before retrenchment, layoff, or closure rises from 100 to 300 workers. Establishments below this threshold may restructure their workforce without government permission, subject to prescribed notice periods and compensation obligations. For each worker retrenched, the employer is required to contribute an amount equivalent to 15 days of last-drawn wages to the Worker Re-Skilling Fund within 45 days of retrenchment, subject to the fund and operational mechanism becoming effective upon implementation by the appropriate Government.
Fixed-Term Employment
The IR Code formally recognises fixed-term employment (FTE) as a distinct engagement category. Fixed-term employees are entitled to statutory benefits, including PF, ESI, and gratuity proportionate to the duration of their fixed-term engagement, without the conventional five-year qualifying requirement, on a par with permanent workers. Contracts expiring by their terms do not attract retrenchment compensation obligations, though early termination by the employer may, depending on the facts attract retrenchment-related obligations.
Trade Union Recognition
A union commanding at least 51% membership in an establishment may be designated the sole Negotiating Union with collective bargaining rights. Where no union reaches this threshold, a Negotiating Council comprising representatives of all unions with at least 20% membership is constituted. This rationalises the historically fragmented multi-union landscape in Karnataka's larger manufacturing centres.
Dispute Resolution
The IR Code establishes time-bound adjudication mechanisms. Workers may approach the Industrial Tribunal directly after 45 days of failed conciliation. Strikes and lockouts require 14 days advance notice. Critically, one of the other major changes brought about to the definition of ‘strike’ is the inclusion of concerted casual leave by 50% or more workers employed in an industry.
The Industrial Relations (Central) Rules, 2026 and Model Standing Orders 2026 - Notified 8 May 2026
The IR Code Central Rules, notified on 8 May 2026, address the procedural framework for key provisions. The accompanying Model Standing Orders 2026, separately notified for the manufacturing sector, are particularly significant such as:
Grievance Redressal Committees (GRC): Mandatory for establishments with 20 or more workers. GRC is a mechanism for resolving individual employee grievances at the workplace level. Committees must have equal employer and worker representation, not exceeding 10 members in total, and must include adequate representation of women workers.
Works committees: works committee are mandatory for every industrial establishment employing 100 or more workers, in order to promote day to day cooperation between employers and workers. Works Committee may consist of up to 20 members, with worker representatives not less than employer representatives, ensuring balanced participation in matters of collective workplace interest.
Manufacturing Sector: The Model Standing Orders 2026 for the manufacturing sector classify workers into categories including permanent, temporary, apprentice, probationer, badli, fixed-term, and casual workers. They prescribe rules on attendance, leave, shift work, misconduct, and disciplinary proceedings. Compared to the 1946 framework, recognise the Internal Complaints Committees for sexual harassment related complaints and grievance redressal committees under the IR Code.
Digital worker records: The new standing orders require workers' records to include mobile number, email address, ESI number, gratuity nominee, and training history, reflecting a shift to digitised employment records.
Lay-off and retrenchment applications: The Rules delegate authority to Joint Secretary-level officers to examine applications for lay-off, retrenchment, and closure in establishments where the Central Government is the appropriate government.
Union recognition and election procedures: Digital processes are prescribed for conciliation proceedings, notices, and election procedures for worker representatives.
Settlement agreements: Provisions for the form and binding nature of collective agreements, effective for up to three years, are set out in the Rules.
Karnataka Manufacturers' Action Point - IR Code
Central IR Code Rules are now in force. Establishments with 300 or more workers must frame standing orders aligned with the Model Standing Orders 2026 for the manufacturing sector within the prescribed six-month window. Establishments with over 20 workers must constitute Grievance Redressal Committees immediately. Review and formalise trade union recognition strategy with IR Code requirements.
3. The Code on Social Security, 2020
Overview
The SS Code consolidates nine statutes, most notably the EPF and Miscellaneous Provisions Act 1952, the ESI Act 1948, the Payment of Gratuity Act 1972, and the Maternity Benefit Act 1961. It is the Code with the broadest structural ambition, extending social security coverage to gig and platform workers, unorganised sector employees, inter-state migrants, and other categories previously excluded from the formal social security net. For manufacturers, its most immediate implications flow from the redefined wage definition and revised gratuity framework for fixed term employees.
Key Provisions
Wage Redefinition - Cascading Impact on PF, ESI, and Gratuity
The SS Code adopts the same definition of 'wages' as the Wage Code. This has cascading implications for statutory contributions. The ESIC clarified through circulars in December 2025 that the new wage definition must be applied in computing ESI contributions, and that employees previously excluded from ESI coverage due salary structuring practices may now fall within the scheme. Employers should reassess their entire workforce database for contribution recalculation.
Gratuity - Extended to Fixed-Term Workers and New Categories
Fixed-term employees are entitled to gratuity proportionate to the period of service rendered, even where they do not complete the conventional five-year qualifying period applicable to regular employees. The SS Code also recognises applicability of gratuity provisions to piece-rate workers, seasonal workers, and disabled workers. The current ceiling of ₹20 lakhs continues to apply until modified by the Central Government.
Under the SS Code, employers (other than government-controlled establishments) are required to obtain compulsory gratuity insurance, the date for this obligation is yet to be notified by the appropriate government, but manufacturers should begin identifying and engaging approved insurers now.
Maternity Benefits
The SS Code carries forward the protections of the Maternity Benefit Act 1961. Women employees who have worked for at least 80 days in the previous 12 months immediately preceding the expected date of delivery are entitled to maternity benefits including paid leave, creche access, and nursing breaks.
Principal Employer Liability for Contract Labour
The SS Code retains principal employer liability. Where a contractor fails to make PF or ESI contributions for its contract workers, the principal employer is jointly and severally liable. In the event of a business transfer, the transferee employer is also jointly liable with the transferor for unpaid social security dues, a provision highly relevant for manufacturers engaged in mergers, acquisitions, or plant transfers.
Gig and Platform Workers
For the first time, gig and platform workers have formal legal recognition under the SS Code. Aggregators must contribute 1–2% of their annual turnover (capped at 5% of total payments to gig workers) toward a dedicated Social Security Fund for such workers. This provision is primarily relevant to manufacturers engaging technology-platform-based logistics or delivery services, and to establishments that classify portions of their workforce through digital platforms.
The Code on Social Security (Central) Rules, 2026 - Notified 8 May 2026
The SS Code Central Rules, notified on 8 May 2026, were developed under Sections 154, 155, 158, and 159 of the Code on Social Security. They operationalise procedures across multiple areas which are as follows:
Gig and platform worker registration: The Rules prescribe procedures for the registration of gig and platform workers with social security organisations. Eligibility conditions and registration procedures are prescribed under the Rules. The rate and manner of aggregator contributions remain to be notified separately by the Central Government.
ESI contributions: The Rules provide procedures for computing and depositing Employees' State Insurance contributions under the new wage definition, aligning with ESIC's December 2025 circulars.
Gratuity: The Rules clarify that gratuity for fixed-term employees accrues on a pro-rata basis after one year's service. Any subsequent period in excess of six months is rounded up to a full year for the purpose of gratuity calculation. Annual performance-linked payments not forming part of regular remuneration are excluded from the gratuity wage base.
Crèche facilities: Establishments with 50 or more employees must provide and maintain a crèche for children under six years, situated within one kilometre of the workplace, or pay monthly crèche allowance of at least ₹500 per child for up to two children per employee.
Advance gratuity applications: The Rules permit advance submission of gratuity applications where the date of retirement or cessation of employment is known in advance, removing the need for employees to claim retrospectively. Advance gratuity applications:
Unified registration: All establishments, regardless of workforce size, must register electronically with the Central Government's unified social security registration portal. Existing EPF and ESI registrations remain valid during the transition.
Business transfer liability: The Rules set out procedures for joint liability of transferor and transferee employers for unpaid social security dues in business transfers.
Actions under previous rules: The Rules confirm that actions validly taken under the previously repealed legislation, including registrations, filings, and contribution payments, remain valid and effective.
Karnataka Manufacturers' Action Point - SS Code
Review and reassess all PF and ESI contributions under the new wage definition for the entire workforce. Identify fixed-term workers who have completed one year and calculate gratuity based on period of service accruals. Ensure the crèche obligation is assessed, any establishment with 50 or more employees must provide a crèche or pay the ₹500 monthly allowance. Begin exploring compulsory gratuity insurance products with approved insurers in anticipation of the date of notification by the appropriate government. Audit all contractor agreements for principal employer liability exposure.
4. The Occupational Safety, Health and Working Conditions Code, 2020
Overview
The OSH Code is the Labour Code with the most direct operational impact on factory floors. It consolidates 13 statutes, most notably the Factories Act 1948, the Contract Labour (Regulation and Abolition) Act 1970, the Inter-State Migrant Workmen Act 1979, the Building and Other Construction Workers Act 1996, and eight others into a single, unified compliance framework. It consolidates multiple sector-specific labour and safety statutes into a unified framework, with a consolidated framework of registrations, licences, returns, and inspection obligations.
Key Provisions
Revised Factory Thresholds
The threshold for coverage as a 'factory' is raised from 10 workers (power-using premises) and 20 workers (non-power premises) under the Factories Act 1948, to 20 workers (power-using) and 40 workers (non-power) under the OSH Code. This reduces the number of smaller establishments falling within the definition of ‘factory’ under the Code. Establishments newly crossing these thresholds must implement all applicable safety and welfare requirements.
Single Registration, Licence, and Annual Return
The OSH Code's most operationally significant ease-of-doing-business reform is the replacement of multiple registrations and licences with a single unified framework consolidated licensing framework intended to streamline factory and contract labour compliances, and one consolidated annual return. The licence is valid for five years. This is already being integrated through Karnataka's Karmika Spandana portal for establishments where Karnataka is the appropriate government.
Core Activity Restrictions on Contract Labour
The OSH Code introduces a clear definition of 'core business activities' and places restrictions on engagement of contract labour in notified core activities, subject to specified exceptions. Three exceptions apply: where the work is customarily done by contractors in that industry; where the activity does not require full-time workers for the major portion of working hours; or where a sudden increase in workload of the core activity must be handled within a specified time. In this context, Karnataka's manufacturers, particularly in sectors with deep contract labour dependencies must carefully map their workforce arrangements against this framework.
The contractor licence threshold has also been raised: contractors employing fewer than 50 contract workers no longer require a licence under the OSH Code, up from the earlier threshold of 20 workers under the Contract Labour Act. This provides relief for smaller sub-contractors engaged by manufacturers.
Women Workers - Night Shifts
The OSH Code removes the blanket prohibition on women working night shifts that existed under the Factories Act. Women may now work before 6 AM and after 7 PM in any establishment, subject to their written consent, and provided the employer has put in place documented safety measures including secure transport arrangements, adequate lighting, CCTV surveillance in specified areas, security personnel on site, well-lit washrooms, and drinking water facilities. In this context, Karnataka's garment, electronics, and pharmaceutical manufacturing sectors, which employ large numbers of women, this enables 24-hour operations with corresponding safety infrastructure obligations.
Annual Health Check-ups
Annual medical examinations are mandated for workers in specified categories. Karnataka's draft OSH rules propose that these examinations apply to workers over 40 years of age. The March 2026 Ministry FAQs indicate that where Central and State rules differ on the age threshold, the applicable rules depend on whether the Central or State Government is the appropriate government for the establishment in question.
Inter-State Migrant Workers
Inter-state migrant workers shall become eligible for journey allowance for round-trip travel to their home state once every 12 months, after completing 180 days of work. This is particularly relevant for Karnataka's construction and manufacturing sectors, which rely significantly on migrant labour from other states.
The Occupational Safety, Health and Working Conditions (Central) Rules, 2026 - Notified 8 May 2026
The OSH Code Central Rules, notified on 8 May 2026, address the procedural machinery for the Code's provisions. For manufacturing companies, the most significant elements are:
Appointment letters: Mandatory issuance of appointment letters to all workers is prescribed. Workers who have not previously received appointment letters are required to be issued them within three months of commencement of the OSH Code Central Rules. The format and prescribed particulars for appointment letters are set out in the Rules.
Registration and cessation: Forms for registration of establishments and cessation of operations are prescribed. The Rules also operationalise the consolidated licensing framework covering both factory operations and contract labour.
Working hours and overtime: The Rules retain the 48-hour weekly cap. Daily working hours, intervals, and spread-over periods for different classes of establishments and workers are to be notified separately by the appropriate government. Consent for overtime work is mandatory. The framework permits flexible distribution of working hours subject to prescribed daily and weekly limits, overtime requirements, and approval conditions.
Principal employer obligations for contract labour: Where contract workers are engaged at the principal employer's premises, the principal employer must provide basic facilities including toilets, washrooms, drinking water, first aid, canteen, and crèche. Other entitlements remain the contractor's responsibility. Contract labour grievances relating to health, working conditions, or wages must be addressed by the principal employer within one month, failing which they must be escalated to the Inspector-cum-Facilitator.
Night shift duties for women employees: The Rules prescribe mandatory employer duties for women working night shifts, including obtaining prior written consent, providing safe transportation, ensuring CCTV surveillance in specified areas, and providing washroom and drinking water facilities. These requirements must be documented.
National Occupational Safety and Health Advisory Board: The Rules operationalise the constitution and functioning of the National OSH Advisory Board, which sets mandatory national standards for occupational safety. A single Board replaces the multiple sector-specific advisory boards that existed under the 13 repealed statutes.
Inter-state migrant worker portal: The Rules operationalise a dedicated portal for registration and tracking of inter-state migrant workers, facilitating the journey allowance and social security entitlements of this workforce.
Inspector-cum-Facilitator framework: The traditional inspection framework is replaced by an Inspector-cum-Facilitator model under a web-based, randomised inspection scheme. The Inspector-cum-Facilitator framework emphasises compliance assistance alongside inspection and enforcement functions. First-time non-compliances may be subject to advisory action and an opportunity to rectify before penalties are imposed.
Safety Committees: Safety Committees are mandatory for establishments with 500 or more workers. Qualified Safety Officers must be appointed in specified categories of establishments, with their qualifications, duties, and service conditions prescribed in the Rules.
Accident and disease reporting: Procedures for prompt reporting of accidents, dangerous occurrences, and occupational diseases to the prescribed authorities are set out in the Rules. Employers must take immediate corrective action upon being notified of unsafe conditions.
Karnataka Manufacturers' Action Point - OSH Code
Draft Karnataka OSH Code Rules were published in January 2026; final State rules are pending. In the interim, the Central OSH Rules provide the operative framework for most substantive compliance obligations. Issue appointment letters to all workers within three months. Verify factory registration status and consolidate into the single licence framework. Implement night shift safety protocols for women workers. Constitute Safety Committees for establishments with over 500 workers. Prepare for possible health check-up requirements proposed under the Karnataka draft OSH Rules, including for workers above prescribed age thresholds.
5. Karnataka's Position
Karnataka's draft OSH Code rules, published in January 2026, include state-specific provisions including annual health examinations for workers over 40, online registration and licensing through the Karmika Spandana portal, and consolidated safety standards across factory, construction, and plantation sectors. The State Safety Committee and Safety Officer requirements are set out in the draft rules.
Karnataka's manufacturing hubs such as, Bengaluru, Tumkuru, Dharwad, Belagavi, and Hubballi-Dharwad, are home to diverse industrial clusters operating under different sector-specific minimum wage notifications, and manufacturers must track both central and state notifications closely. Karnataka's zone-wise minimum wage structure (Zones I through IV) and bi-annual VDA revisions continue to apply under the new framework.
Manufacturers with operations across multiple states should note that the Central Rules now provide a clear national baseline, but state-specific procedural rules are awaited. A factory in Bengaluru and one in Chennai may, for some months in 2026, operate under differing procedural regimes even where substantive Code provisions are identical.
6. Enhanced Penalties Under the Labour Codes
The Labour Codes generally prescribe significantly higher penalties for non-compliance compared to the repealed legislation. Fines range from ₹50,000 to ₹10,00,000 depending on the nature and gravity of the violation. Repeat offences attract enhanced penalties and may, in serious cases, attract imprisonment. In business transfers, transferor and transferee are jointly liable for unpaid social security dues, a provision relevant for manufacturers pursuing M&A activity.
The Inspector-cum-Facilitator model introduced under the Codes is designed to prioritise compliance guidance over punitive enforcement, particularly for first-time violations. However, the higher penalty ceiling means that deliberate or repeated non-compliance carries substantially greater financial risk than under the old framework.
7. Compliance Priorities - A Practical Checklist for Karnataka Manufacturers
In light of the four Codes and the Central Rules notified on 8 May 2026, King Stubb & Kasiva recommends that manufacturing companies in Karnataka undertake the following steps as a matter of priority are as follows:
Payroll and wage structure audit: Conduct a full payroll review to ensure wages (basic + DA + retaining allowance) constitute at least 50% of total remuneration for every worker category. Assess whether monetisable in-kind benefits may require consideration in the calculation. Review the impact on PF, ESI, gratuity, bonus, and overtime bases accordingly.
Standing orders review: Assess whether your establishment employs 300 or more workers. If so, review and update certified standing orders, where applicable aligned with the Model Standing Orders 2026 for the manufacturing sector within the prescribed six-month window. Ensure digital worker records include all newly required fields.
Grievance Redressal Committees: Establish or review GRCs for all establishments employing 20 or more workers, ensuring adequate women's representation and a maximum of 10 members.
Works Committees: Assess applicability of Works Committee requirements for establishments employing 100 or more workers and no more than 20 members in total.
Fixed-term employment contracts: If engaging or planning to engage workers on FTE terms, ensure written contracts comply with IR Code requirements, that benefit parity is in place, and that proportional gratuity accruals after one year of service based on period of service rendered are provisioned for in your books.
Appointment letters: Issue written appointment letters to all workers. Workers who have not previously received letters must receive them within three months of commencement of the OSH Code Central Rules. Use the prescribed format and include all required particulars.
Factory registration consolidation: Verify your establishment's factory registration status under the new thresholds. Move toward the consolidated single-licence framework covering factory and contract labour operations through the Karmika Spandana portal.
Contract labour mapping: Map all existing contract labour arrangements against the OSH Code's core activity restrictions. Regularise or restructure arrangements in core activities that do not qualify for an exception. Note the raised contractor licence threshold of 50 workers.
Principal employer obligations for contract labour: Ensure basic welfare facilities (toilets, washrooms, drinking water, first aid, canteen, crèche) are available to contract workers at your premises. Establish a one-month contract labour grievance escalation procedure.
Night shift safety protocols for women: For any establishment deploying women before 6 AM or after 7 PM, implement and document the full suite of required safety measures: written consent, secure transport, CCTV, security personnel, lighting, and washroom facilities.
Annual health check-ups: Implement annual medical examination programmes for workers over 40 years of age, in alignment with the Karnataka draft OSH Code rules.
Crèche obligations: Assess whether your establishment crosses the 50employee threshold. Either provide a crèche within one kilometre of the workplace or pay the ₹500 monthly crèche allowance per child for up to two children per eligible employee.
Social security contribution recalculation: Review and Reassess EPF and ESI contributions under the revised wage definition for all workers. Address historical under-contributions in consultation with legal counsel. Update ESI registration and contribution records for newly covered employees where applicable.
Gratuity insurance: Initiate identification and onboarding of IRDAI approved gratuity insurance providers, in preparation for the compulsory gratuity insurance requirement under the SS code.
Worker Re-Skilling Fund: Where retrenchments are planned, ensure timely deposits of 15 days last-drawn wages per retrenched worker to the National Worker Re-Skilling Fund within 45 days, subject to the fund and operational mechanism becoming effective upon implementation by the appropriate Government under the Industrial Relations Code, 2020 framework.
Safety Committees: Constitute Safety Committees for establishments with 500 or more workers. Appoint qualified Safety Officers in categories of establishments prescribed by the Rules.
Digital compliance systems: Transition wage registers, muster rolls, attendance records, overtime records, and notices to electronic formats. Ensure records retention systems can preserve data for five years.
State rules monitoring: Monitor the Karnataka Labour Commissioner's Karmika Spandana portal for final notification of Karnataka OSH Code rules and SS Code rules. Adjust compliance frameworks when State rules are finalised.
Inter-state migrant worker registration: Upon notification and operationalisation of the Central Government migrant worker portal, register eligible inter-state migrant workers and incorporate journey allowance entitlements into HR processes.
Conclusion
The continued operationalisation of the Labour Codes framework through Central Rules and implementation notifications issued in 2026 marks the effective completion of India's legislative labour reform architecture. The substantive framework is now substantially operationalised at the Central level, and Manufacturers in Karnataka, already functioning within the State-level Wage Code and IR Code framework, should approach Labour Code compliance as a present and ongoing operational requirement rather than a future transition exercise.
The challenge for manufacturers is real, payroll systems, employment contracts, standing orders, contractor agreements, factory registrations, and safety protocols must all be reviewed against a substantially new framework. The financial implications alone, from recalculated PF, ESI, gratuity, and bonus bases, can be significant, particularly for companies that have historically maintained low wage structures.
The opportunity, however, is equally real. Movement toward consolidated registration and licensing frameworks instead of multiple registrations. Digital compliance instead of paper-based registers. Structured FTE arrangements instead of informal contract labour. Clearly defined rules on trade union recognition, collective bargaining, and dispute resolution. For manufacturers making long-term investment decisions in Karnataka, a simplified and predictable regulatory environment is a material competitive advantage.
Authored by Ankit Chandra, Associate Partner, King Stubb and Kasiva and Contributed by Priyanka Kwatra, Director-Legal, King Stubb and Kasiva.
21 May 2026
