New Labour Codes: Tax-free gratuity of Rs 20 lakh, double overtime and one holiday every 20 days, know the highlights

India's new Labour Codes are set to transform the lives of over 500 million workers by rewriting rules related to wages, working hours, social security, and workplace conditions. 

However, three reforms are crucial for workers: retaining the gratuity limit at Rs 20 lakh, doubling overtime pay, and providing one day's leave after every 20 days of work, after only 180 working days. 

The new Labour Codes subsume 29 labour laws. The four Labour Codes include the Salary Wages Code, 2019, the Industrial Relations Code, 2020, the Social Security Wages Code, 2020, and the Occupational Safety, Health, and Working Conditions Code, 2020.

The Ministry of Labor stated that this landmark reform streamlines compliance, modernizes outdated provisions, and creates a simple, efficient framework that promotes ease of doing business while protecting workers' rights and welfare. 

While the four labor codes cover a wide range of reforms, these three directly impact the daily lives, financial security, and well-being of workers in both the organized and unorganized sectors. Let's consider three reforms that will significantly impact over 5 million workers in the country.

Tax-free gratuity of Rs 20 lakh

The tax-free gratuity limit has been retained at ₹20 lakh. This reform applies to all establishments covered by gratuity laws and is particularly relevant for employees in the later stages of their careers. 

The gratuity limit of ₹20 lakh is the tax exemption limit for gratuity payments received by an employee, which was raised from ₹10 lakh in 2018. This means that any gratuity amount exceeding the ₹20 lakh limit will be added to your taxable income and taxed as per your income tax slab.

The gratuity period has been reduced from 5 years to 1 year. Employees in both the organized and unorganized sectors will now be eligible for gratuity upon completing 1 year of service with their organization. 

Previously, 5 years of service was required to be eligible for gratuity. Fixed-term employees are now eligible for gratuity without the five-year service requirement, making this benefit more inclusive.

1 day off for every 20 days worked

Under the Occupational Safety, Health and Working Conditions (OSH) Code, the government has made it easier for employees to earn paid leave, with two major changes.

Leave eligibility after 180 days instead of 240 days

Previously, an employee had to complete 240 working days to be eligible for annual leave. Now, eligibility will begin at 180 days, allowing new employees to receive leave benefits faster. 

One day of leave will be awarded for every 20 days worked. Employees will now accrue leave at the rate of one day for every 20 days worked, making leave accrual faster and more equitable. This reform will be especially beneficial for contract workers, seasonal workers, and migrant workers.

Overtime pay doubled

Perhaps one of the most impactful reforms for daily wage and industrial workers is the strengthening of overtime laws. Under the new labor codes, any work performed beyond the prescribed working hours must be paid at double the normal wage rate. 

Employers must maintain transparent records of overtime. Workers cannot be made to work overtime without their consent. Double-rate overtime has long existed in principle, but its enforcement was weak and inconsistent. 

With clear provisions, strict compliance systems, and web-based monitoring mechanisms, workers now have a strong legal claim to fair overtime compensation. 

In industries that regularly rely on long shifts—manufacturing, textiles, logistics, security services, hospitality—this reform will significantly impact wage payments.

Minimum salary security for all

1. A national minimum wage to avoid regional disparities
2. Minimum wage revision every five years
3. Equal pay for men and women
4. Mandatory timely payment of salaries
5. This ensures that gig workers, platform workers, daily wage labourers and workers in small shops or establishments are not deprived of wage protection.
6. Strong social security coverage
7. Expansion of ESIC coverage from 566 districts to all districts
8. EPF benefits for organised, unorganised and self-employed workers
9. A national database of unorganized workers for easy benefit distribution
10. A new social security fund for gig and platform workers
11. These changes are aimed at ensuring that informal workers also have access to structured financial security.