New Labour Codes: Settlement Agreements And Contracting Out – Is It A Possibility?

With the coming into force of the new labour codes on 21 November 2025, the revised definition of ‘wages’ has assumed critical importance for the computation of statutory dues. The definition adopts a bifurcated structure, clearly distinguishing between inclusions and exclusions, and the notional wage amount on the basis of which social security contributions and other statutory benefits are required to be paid.

In practice, while the terms of employment for white‑collar employees are typically governed by appointment letters and employment contracts, the engagement of blue‑collar workers is often regulated through settlement agreements entered into under labour laws. Such settlement agreements have long been used as an effective tool to ensure industrial harmony and avoid protracted disputes between employers and workmen.