Labour Codes 2025 Update
Onslaught of New Labour Codes 2025: ESIC applicability, wage definition and the rules question
The Government of India implemented a comprehensive labour law reform with effect from 21 November 2025, consolidating 29 existing labour laws into four labour codes. The reforms apply to all types of workers including full-time, part-time, contract, and gig workers and are aimed at improving transparency, enhancing employee benefits, ensuring timely payments and widening social security coverage. This note focuses on the Code on Social Security, 2020 and the evolving ESIC communications issued in December 2025.
Practical read of the December 2025 ESIC letters
ESIC’s letter dated 18 December 2025 clarifies that the 11 December 2025 communication was issued to create awareness during SPREE initiatives, and that compliance action under the Code on Social Security, 2020 will follow only after Central Rules and Regulations are notified. Until then, the existing approach under the ESI Act, 1948 continues to operate in practice.
Snapshot
Labour Codes effective: 21 November 2025
ESIC letters: 11, 18 December 2025
Interim position: current ESI approach continues until Rules are notified
Brief overview: Code on Social Security, 2020 and ESI
CoSS focus
To modernise and streamline labour regulation, the Union government has merged 29 separate laws into four labour codes now in force. Of specific relevance here, the Code on Social Security, 2020 extends social security benefits like provident fund, gratuity and ESI to more categories of workers, including gig and platform workers. Collectively, the codes seek to consolidate and simplify compliance for ease of doing business while strengthening worker protection within India’s evolving labour market.
December 2025 timeline: key communications shaping ESIC interpretation
Official letters referenced
1 December 2025
Government of Gujarat
Dr. Vinod R. Rao, IAS, Principal Secretary, Labour Skill Development and Employment Department, Government of Gujarat issued a letter focused on applying social security laws to employees across sectors and urged eligible establishments to register with ESIC, extending attention to medical, educational, transportation, mines and diverse establishments and institutions.
11 December 2025
ESIC, New Delhi
Ashish Dixit, Assistant Director (Revenue), stated that a new wage definition under Section 2(88) is defined for purposes under the Code on Social Security, 2020 and that it differs from the earlier wage definition under Section 2(22) of the ESI Act, 1948. The letter indicated that many previously exempted employees in covered establishments may be brought under ESIC coverage due to the new wage definition, and it flagged units where EPFO contributing employees exceed ESIC contributing employees for targeted compliance outreach.
18 December 2025
ESIC, New Delhi
Rakesh Kumar, Joint Director (Revenue), clarified that the 11 December communication was issued only to create awareness during SPREE initiatives. Since Central Rules and Regulations are yet to be notified under the Code on Social Security, 2020, further compliance action will be taken in accordance with the notified Rules and Regulations in the matter, as approved by the competent authority.
What the latest ESIC clarification means in practical terms
Interim applicability
From the ESIC letter dated 18 December 2025, it becomes evident that under SPREE (Scheme for Promotion of Registration of Employers and Employees), new employers and new employees may be registered for ESI coverage under the existing ESI framework. At the same time, ESIC indicates that there is no operational change in enforceability under the Code on Social Security, 2020 until Central Rules and Regulations are notified. The 18 December clarification provides temporary certainty, while also signalling that the implementation pathway will be driven by the notified Rules.
Why the clarification arrived
In the intervening period, a rush of RTI queries and emails were reportedly addressed to the Director General of ESIC seeking clarity on applicability and operationalisation of Chapter IV of the Code on Social Security, 2020, including wage ceiling, employee definition, commencement of contributions and related legal positioning. These reactions underscore the need for final Rules and Regulations to reduce ambiguity and provide an enforceable operating framework.
Core operational point
The Code on Social Security may be notified, but without Rules and Regulations, enforceability remains incomplete. Compliance action, as per the 18 December 2025 clarification, is intended to align with the notified Rules and Regulations once issued.
Key takeaways for employers and HR teams
Employer action lens
What to do now
The existing ESI Act, 1948 wage definition continues to apply until Rules under the Code on Social Security are notified.
Employers should avoid making structural changes solely on the basis of the 11 December 2025 letter, and should rely on the 18 December clarification for interim certainty.
Internal preparedness for labour codes should continue, but implementation steps should be aligned to notified Rules and Regulations.
Documentation and payroll readiness should be strengthened to support future transitions once the Rules are issued.
What to avoid
Do not panic or rush into enrolling employees solely based on awareness communications.
Do not treat awareness communications as final enforceable requirements when Rules and Regulations are pending.
Do not ignore potential compliance gaps where EPFO contributing employees exceed ESIC contributing employees in covered units; review and document the position.
Do not postpone system upgrades required for future wage definition recalculations; plan them with governance checks.
Professional note
Views expressed are based on official ESIC communications and professional interpretation, and remain subject to further notifications, Rules, Regulations and judicial review.
Brief examination: changing equations for ESI under the Social Security Code
Impact themes
| No. |
Theme |
Operational reading |
| 1 |
Core wage components and add-back test |
Basic pay, dearness allowance and retaining allowance form the core. Excluded components cannot exceed 50% of total remuneration; excess may be added back for contribution computations once the notified framework is operationalised.
|
| 2 |
Employees above gross 21,000 and recalculated wage |
Certain salary structures may bring the recalculated wage to 21,000 or below even where gross remuneration is higher, which could widen coverage under the threshold approach, subject to notified Rules and Regulations.
|
| 3 |
Allowances-heavy structures |
Where allowances are higher, the add-back mechanism may increase the contribution base. Payroll governance should model scenarios and capture impacts for future transition planning.
|
| 4 |
SPREE 2025 focus window |
SPREE initiatives focus on promoting registration of employers and employees during the defined period. Documentation of eligibility positions and timely registration reduce downstream dispute exposure.
|
| 5 |
Payroll readiness and recalculation discipline |
Maintain payroll masters, wage components mapping and employee category tagging to support a controlled shift to any notified wage definition and computation method.
|
| 6 |
Post-window risk perspective |
After the SPREE window ends, establishments should be prepared for enforcement intensity, including the possibility of retrospective coverage assertions where eligibility positions were not documented and regularised.
|
Note: The above impact themes are presented for planning and governance. The enforceable operational position will depend on notified Central Rules and Regulations under the Code on Social Security, 2020 and any subsequent clarifications.
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Disclaimer: This blog content is an informational communication based on the content provided. Applicability and enforceability depend on notified Rules and Regulations and may vary by establishment facts. For official interpretation, refer to ESIC and Government notifications.
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