Industrial Relations Code 2020 India Explained
The Industrial Relations Code 2020 merges three older laws into one framework covering trade unions, disputes, standing orders, layoff, retrenchment and strikes. The biggest operational change is the threshold for prior government permission on layoff, retrenchment or closure, which rises from 100 workers to 300 workers. The Code received Presidential assent on 28 September 2020, and the central government brought the Code into force on 21 November 2025, with state rules aligning through 2025-26.
The three laws it replaces
The Industrial Relations Code is the second of four labour codes, coming after the Code on Wages 2019 and before the Social Security Code and OSH Code. It consolidates the Industrial Disputes Act 1947 (layoff, retrenchment, closure, strike, lockout, conciliation and adjudication), the Trade Unions Act 1926 (union registration, rights and immunities), and the Industrial Employment (Standing Orders) Act 1946 (model standing orders, employee categories, disciplinary procedure). Central rules were notified in 2020 to 2021, state rules followed across 2021 to 2024, and most operational provisions are active in states that have notified rules.
The 300-worker threshold (Section 77)
Under the old Industrial Disputes Act, establishments with 100 or more workers needed permission from the appropriate government for layoff, retrenchment or closure. That permission was hard to obtain, slow, and politically charged, so many mid-size employers avoided the regime by structuring as small entities or contract labour. Section 77 raises the threshold to 300 workers.
Establishments under 50 workers need no permission and no notice, only retrenchment compensation under Section 70. From 50 to 299 workers, no permission is needed but one month notice or notice pay plus retrenchment compensation applies. At 300 workers and above, prior permission from the appropriate government is required, along with notice and compensation. The state government can lower the threshold by notification, so a state such as West Bengal, Kerala or Tamil Nadu may keep the 100-worker rule. Track state notifications carefully.
What counts as a worker?
Section 2(zr) defines a worker as any person employed in manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward. People earning above ₹18,000 per month in a managerial or administrative capacity are excluded. Most office-based supervisory staff on managerial salary do not count, so the 300-worker threshold applies to the worker headcount, not total headcount. A 1,000-employee IT company with only 50 support staff in worker categories falls under the <300 bucket.
Retrenchment compensation: 15 days per year (Section 70)
Section 70 carries forward the existing formula: 15 days average pay for every completed year of continuous service, with any service fraction exceeding 6 months counted as a full year. Add one month notice or notice pay in lieu. Average pay is the average of the worker's daily wages for the last 3 calendar months, and daily wages equal (Basic + DA + retention) divided by 26.
Worked example. Ramesh has 8 years 8 months of service and a last-3-months average daily wage of ₹1,200. His service rounds to 9 years because the extra 8 months counts as a full year. Retrenchment compensation is 15 × 9 × ₹1,200 = ₹1,62,000. Notice pay is ₹1,200 × 26 = ₹31,200 for one month. On top of that come accrued gratuity, leave encashment and other F&F items.
The Worker Re-skilling Fund (Section 83)
The Code adds a new compliance line: a Worker Re-skilling Fund, jointly funded by employers and the central government, used to re-skill retrenched workers. The employer contribution equals 15 days wages of the retrenched worker, in addition to retrenchment compensation. The amount is credited to the worker's account within 45 days of retrenchment and used for re-skilling programs, administered by the appropriate government (state-level for most establishments). The practical effect is that every retrenchment now costs 15 + 15 = 30 days wages per year of service before gratuity, leave encashment and bonus.
Fixed-term employment (Section 2(o))
The Code formalises fixed-term employment as a regulated category, separate from permanent employment and contract labour. Fixed-term workers get the same wages, allowances and social security as permanent workers doing similar work, plus gratuity on a pro-rata basis from day 1 (read with Section 53(2) of the Social Security Code). A contract ends without retrenchment compensation if it is not renewed, and non-renewal is not treated as retrenchment. There is no bar on converting to permanent when the same worker is renewed repeatedly, and best practice is to convert after 2 to 3 renewals. Fixed-term contracts in core production are now legal, since the older bar on essential operations is lifted.
Trade unions, strikes and closure
Section 14 sets a uniform recognition rule. A union with 51% or more of workers as members becomes the sole negotiating union with exclusive bargaining rights. Where no single union reaches 51%, a negotiating council is formed from all unions with 20% or more membership, and unions under 20% are not entitled to a council seat but can still operate.
Section 62 extends strike notice to all industrial establishments, not just public utilities. Workers must give 14 days written notice, and strikes are barred during conciliation and for 7 days after it concludes, as well as during arbitration or adjudication. An illegal strike carries a fine of ₹10,000 to ₹50,000 or imprisonment up to 1 month per worker. On closure, Section 79 requires 300-plus-worker establishments to seek 60 days prior permission, while smaller establishments need only notice and compensation. Layoff compensation under Section 67 is 50% of Basic + DA for the laid-off period, up to 45 days in a calendar year, with no compensation for workers under one year of continuous service.
Work it out / Related tool
To size a retrenchment or exit payout that includes accrued gratuity alongside the 15-days-per-year compensation, use the gratuity calculator, then read the Code on Wages 2019 guide for the wage definition that feeds these formulas.
What is the new threshold for layoff and retrenchment permission?
Section 77 raises the threshold from 100 workers to 300 workers. Establishments with 300 or more workers need prior government permission for layoff, retrenchment or closure. Below 300, only notice plus retrenchment compensation is required, no permission. This is the most operationally significant change in the Code, intended to give mid-size employers flexibility while preserving worker protection in large establishments.
What is fixed-term employment under the Code?
Section 2(o) recognises fixed-term employment as a category. Fixed-term workers get the same wages, allowances and other benefits as permanent workers doing similar work, gratuity on a pro-rata basis from day 1 (read with the Code on Social Security), and statutory protection. Their contracts end without retrenchment compensation if not renewed. Fixed-term employment is now a legitimate, regulated category, replacing the earlier ambiguity.
What are the retrenchment compensation rules?
Section 70 sets 15 days average pay for every completed year of continuous service, or part thereof exceeding 6 months, plus 1 month notice or notice pay in lieu. The Code also introduces a Worker Re-skilling Fund under Section 83: employers contribute 15 days wages per retrenched worker into a state-administered fund used to re-skill the worker. This is a new compliance line on top of the retrenchment compensation.