Industrial Relations Code, 2020: A Practical Guide for Employers in India

By Editorial Team / July 16, 2026

The Industrial Relations Code, 2020 (IR Code) is one of the four landmark pillars of India’s massive labour law reform. By amalgamating three legacy central statutes—the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act, 1947—the Code establishes a single, modern legislative framework. Its primary objective is to cut through decades of red tape, simplify compliance, and foster a highly collaborative, productive ecosystem for both employers and employees.

A Balanced Legal Framework for Modern Enterprise

The IR Code, 2020 introduces clean, business-friendly thresholds alongside robust social security safeguards. Key highlights that employers must navigate include:

Simplified Standing Orders: Establishments employing 300 or more workers must prepare and certify Standing Orders covering classification of clean duties, shift timings, and disciplinary rules. This is a significant relief from the previous threshold of 100 workers.
Statutory Recognition of Fixed-Term Employment (FTE): Employers can now hire workers on written contracts for a specific tenure. FTE employees enjoy the same hours of work, wages, and social security benefits as permanent workers, including pro-rata gratuity upon completing just one year of service.
Dispute Resolution & Grievance Redressal: Establishments with 20 or more workers must set up a Grievance Redressal Committee (GRC) with equal representation from employers and workers to resolve individual friction points internally before they escalate.
Layoff, Retrenchment, and Closure: Industrial establishments (factories, mines, and plantations) with 300 or more workers require prior permission from the appropriate government authority before executing layoffs, retrenchments, or closures.

Frequently Asked Questions (FAQs)

What is the main objective of the Industrial Relations Code, 2020?

The Code consolidates and rationalises three major historical labour laws. It aims to reduce industrial disputes, promote ease of doing business by raising operational thresholds, and protect workers’ rights through structured dispute resolution and statutory benefits.

Does the Code apply to service-sector startups and MSMEs?

Yes, but the compliance burden is scaled. While basic provisions regarding dispute resolution and wage definitions apply broadly, heavier operational requirements—such as formal Standing Orders or government permissions for retrenchment—only trigger when an establishment employs 300 or more workers.

How does Fixed-Term Employment (FTE) benefit employers under the Code?

FTE provides employers with the structural flexibility to hire workforce for seasonal projects or time-bound contracts without the legal risk of forced permanent absorption. Crucially, it balances this by offering the worker proportional statutory benefits, ensuring fairness and lowering attrition.

What is the penalty for non-compliance under the IR Code?

The Code moves towards decriminalisation for minor technical lapses, favoring monetary penalties instead of immediate imprisonment. However, repeated offenses or severe non-compliance can still attract hefty fines. Early compliance audits are highly recommended to avoid compounding penalties.

Structuring Corporate Compliance: How SetIndiaBiz Helps

Transitioning to the new regime requires more than just reading the law; it demands an active alignment of your operational HR documentation. At SetIndiaBiz, we help MSMEs, large manufacturing units, and rapidly growing corporate enterprises de-risk their human resource management.

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