Draft rules for new labour codes unveiled: 30% threshold for recognition of trade unions and what constitutes as wages defined

The Code mandates a 51% threshold for a "sole negotiating union" if multiple unions exist.

• Labour ministry releases draft rules under four labour codes for public comments
• Draft rules clarify wage calculation, union recognition, and NSSB composition
• Stakeholders have 45 days to submit feedback; final rules expected by April 2026

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The union labour ministry on Wednesday pre-published draft rules under the four labour codes, to seek public comments. These rules give clarity on how to calculate minimum rate of wages for workers, the composition of the National Social Security Board (NSSB) for gig workers, and manner of recognition of negotiating trade unions.

According to labour ministry officials, stakeholders can submit their comments on these rules in the next 45 days, post which the final rules will be published and notified. The officials say, the implementation of code, along with their rules, should be done by April 2026.

As per the rules under Industrial Relations Code, 2020, where "there is only one registered Trade Union operating in an industrial establishment, and having its membership not less than 30 percent of the total workers employed in the industrial establishment, then the employer of such industrial establishment shall recognize such union as sole 'negotiating union' of the workers."

The Code mandates a 51% threshold for a "sole negotiating union" if multiple unions exist. However, for a scenario where only one union exists, the Code had left the criteria open. "The Draft Rules specifically set this threshold at 30%. This will have a significant impact as if a single union exists in a factory but represents only 20% of workers, it cannot be recognized as the sole negotiator under these Rules," explained Rohit Jain, Managing Partner, Singhania & Co.

The Industrial Relations Code also allowed for disputes regarding Trade Unions to be adjudicated by the Tribunal but did not explicitly set a statute of limitations in the text. The draft rules introduce a one-year deadline for filing such disputes.

On wages, the rules clarify that all remuneration whether by way of salaries, allowances or otherwise payable to a person employed, which includes basic pay, dearness allowance, retaining allowance, will be treated as wages for statutory purpose.

If the allowances (except gratuity and retrenchment compensation) exceeds 50 percent of all remuneration, the excess amount shall be added back to wages. However, "performance-based incentives, Employee Stock Option Plans (ESOPs), variable part of the component or reimbursement-based payments to the employee shall not be part of the wages," the rules say.

To be sure, by defining wages far more narrowly, the code mandates that at least 50 percent of an employee’s CTC must be counted as wages.

The ripple effect of this higher wage base is immediate. As wages rise, the amount subjected to PF, both employer contribution and employee deduction, also rises. Gratuity, which is computed on the last drawn basic salary, climbs too. And while these statutory contributions strengthen an employee’s long-term financial cushion, they also reduce the take-home salary in the present.

"A common component about which there is less clarity is variable bonus, which is not listed in the exclusions (from wages definition). However, there may still be a reasonable argument that variable bonus need not be considered as 'wages', especially if there is a discretionary element to it, since it would not satisfy the operative part of the definition of "wages" (that it would be payable if the terms of employment are fulfilled)," noted Bishen Jeswant, Partner, Cyril Amarchand Mangaldas.

Meanwhile, the National Social Security Board – established under Code on Social Security to advise the government on formulating and monitoring suitable schemes for different sections of workers in the un-organised, gig and platform sectors – shall consist of the persons to be nominated by the Central Government representing employers and employees, 'independent persons' and representatives of the State Governments. The independent persons will be nominated by the Central Government, and shall include two members of the Parliament as well, the rules say.

Experts say the draft rules seek to translate high-level statutory concepts into detailed, executable processes, covering matters such as calculation and components of minimum wages in the backdrop of the national floor wages, thresholds for applicability, registration and licensing requirements, maintenance of digital registers and returns, inspection protocols, timelines for payment of statutory dues, and retrenchment procedures.

"Importantly, the draft rules also reflect a move away from fragmented, inspector-driven compliance towards a more standardised and technology-enabled system, with an emphasis on self-certification, electronic filings and uniform enforcement principles," said Anshul Prakash, Partner at Khaitan & Co

Rohitaashv Sinha, Partner, King Stubb & Kasiva, Advocates and Attorneys, says: "The rules are not fundamentally different from the law, but they do determine how burdensome or facilitative compliance will be, making them critical from an implementation and industry-readiness perspective."