August 29, 2026 | 1:30 PM IST – If you’ve been laid off in India recently, or think you might be soon, you’ve probably noticed a gap between what you assumed the law protected and what actually happened to you: a two-minute video call, a revoked laptop login, a severance letter dropped in your inbox before you’d finished processing the news. That gap is not an accident, and it is not just poor HR etiquette — it reflects real, structural features of how Indian labour law is written, who it covers, and who it was designed to protect. This piece explains the rules as they now stand — including a major legal overhaul that took effect in the last year — who genuinely benefits from that framework, and, most importantly, a concrete list of what you are owed and how to get it.
A quick note before we start: this is general legal information, not legal advice for your specific situation. Labour law in India is split between central and state rules, state-level implementation of the newest reforms is still uneven as of mid-2026, and your own entitlement depends on your contract, your role, your state, and your employer’s size. Where your case involves real money or a disputed dismissal, a labour lawyer or your state Labour Commissioner’s office should look at your specific facts.
The single most important fact: the law was rewritten under your feet
For decades, Indian layoffs were governed by the Industrial Disputes Act, 1947 (ID Act), along with the Payment of Gratuity Act, the Payment of Wages Act, and various state Shops and Establishments Acts. On 21 November 2025, the central government notified four new Labour Codes — the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code — replacing 29 older laws, including the ID Act itself. The central rules that operationalise these codes were only finalised around April–May 2026, and individual states are still rolling out their own rules at different speeds: Uttar Pradesh, Gujarat, Karnataka, Madhya Pradesh, Haryana and several others have notified final rules, while Maharashtra, Tamil Nadu, Kerala, Telangana, West Bengal and others were still in draft consultation as of early-to-mid 2026. In practice this means the exact rules that apply to you can depend on which state your employment contract is registered in, and the picture is still settling even as you read this.
The single most consequential change, and the one every laid-off employee should understand first, is this: the threshold at which an employer needs prior government permission before retrenching, laying off, or closing part of its operations has been raised from establishments with 100 or more workers to 300 or more workers. Under the old law, a mid-sized factory or company employing over 100 workers had to seek — and could be refused — government permission before cutting jobs, and had to give three months’ notice while doing so. Under the new Industrial Relations Code, that obligation now only kicks in for establishments of 300 or more workers, which by most estimates exempts the vast majority of Indian industrial and service employers from government scrutiny of their layoff decisions altogether.
“Layoff” and “retrenchment” are not the same thing — and the difference matters for your money
In everyday English, “layoff” means losing your job because your employer is cutting costs. Indian law, however, uses “lay-off” and “retrenchment” as two distinct legal terms with different rules and different payouts, and this distinction still matters immensely under the new codes.
Lay-off, in the legal sense, is a temporary inability of the employer to provide work — because of a shortage of raw material, breakdown of machinery, power shortage, or a natural calamity — without actually terminating your employment. If you are laid off in this technical sense at an establishment with 50 or more workers, your employer owes you compensation equal to 50% of your basic wages plus dearness allowance for the lay-off period, and you remain, on paper, an employee.
Retrenchment is what most of us actually mean by “layoff” in conversation: your employer permanently ends your job for reasons like restructuring, redundancy, or cost-cutting, and it is not a disciplinary dismissal, resignation, retirement, or the natural expiry of a fixed-term contract. This is the scenario that carries the notice, compensation, and (for larger employers) government-permission requirements described below. If your termination letter uses the word “layoff” but your job isn’t coming back, you have very likely been retrenched in the legal sense, and retrenchment protections — not the much thinner lay-off compensation — are what should apply to you.
One entitlement is genuinely new and worth knowing about: under the Industrial Relations Code, employers must now also pay an amount equal to 15 days of your last-drawn wages into a “worker re-skilling fund” within 10 days of retrenchment, on top of your other dues. It’s a small, one-time sum rather than an ongoing benefit, and unions have criticised it as a token gesture, but it is money you are entitled to and should ask about explicitly, since many employers may not yet be aware of or applying it correctly given how recently it came into force.
The rules on paper
Stripped down, here is what the law requires an employer to do before or upon retrenching an employee who qualifies for protection (see the crucial caveat on who qualifies in the next section):
For establishments below the 300-worker threshold, retrenchment of anyone with at least one year of continuous service requires one month’s written notice (or wages in lieu of that notice), retrenchment compensation of 15 days’ average pay for every completed year of service (rounding up any part-year beyond six months), and intimation to the appropriate government. For establishments of 300 or more workers, the notice period rises to three months, and the employer must first apply for and receive government permission — which, notably, is treated as granted if the government doesn’t respond within 60 days, a provision that in practice weakens the “permission” requirement considerably.
Two further protections apply specifically to workers covered by the law: the “last-in-first-out” principle, under which an employer is ordinarily expected to retrench the most recently hired employee within a given category of workers first, with any departure from that order requiring a recorded justification; and a right of first refusal on re-employment, meaning that if the employer starts hiring again for the same category of work within a defined period, retrenched workers get preference. Separately, and regardless of your “worker” status, a rule under the Code on Wages that came into force with the new codes requires full and final settlement of all your dues within two working days of your last day — a dramatic tightening from the 30–45 days many employees used to wait, and one of the more genuinely employee-favourable changes in the new framework.
The catch almost nobody explains to you: are you even covered?
This is the single most important thing for a laid-off employee in India to understand, and it’s the part most casual explainers skip. All of the retrenchment protections above — notice, 15-days-per-year compensation, LIFO, government permission for large employers — apply only to people who legally qualify as a “worker” (called a “workman” under the old Act). The definition covers people doing manual, skilled, technical, operational, clerical or supervisory work, but it excludes people employed mainly in a managerial or administrative capacity, and supervisors earning above a specified wage threshold whose duties are predominantly managerial. Courts have said your actual day-to-day duties matter more than your job title, so a “Senior Associate” or “Team Lead” doing largely hands-on technical work could still count as a worker — but a large share of India’s white-collar, IT, ITES, consulting, and managerial workforce falls outside this definition entirely, and instead sits under state Shops and Establishments Acts, which are generally much thinner on substantive protection and vary considerably from state to state.
The practical consequence shows up starkly in a survey of Indian professionals conducted by the workplace platform Blind in late 2025: of over 1,300 people who had experienced or witnessed a layoff, 72% reported being given notice of two days or less — nowhere near the legally-contemplated notice period — and only 18% received the kind of advance notice (one to three months) the law envisions for a “worker.” More than a third found out over a video call, and 13% discovered they’d been let go when their system access was cut off. Some large multinational technology employers showed non-compliant, no-notice terminations in over 90% of reported cases. This isn’t necessarily illegal in every instance — many of these employees may not legally qualify as “workers” at all, and their employer may be relying on a contractual notice-buyout clause instead — but it illustrates the real-world size of the coverage gap between the law as written and the experience of a large chunk of India’s salaried workforce.
If you don’t qualify as a “worker,” you’re not without rights — you fall back on your employment contract/appointment letter, the Payment of Wages Act, your state’s Shops and Establishments Act, and general contract law — but you lose the specific statutory backstops of notice-period minimums, the 15-day-per-year formula, LIFO, and (for larger employers) government oversight of the decision to cut your role.
What you are owed regardless of your “worker” status
Separate from retrenchment-specific protections, a set of entitlements apply to nearly every salaried employee in India regardless of whether you count as a “worker,” and these are the ones worth checking line-by-line in your final settlement.
Gratuity, under the Payment of Gratuity Act, is payable once you complete five years of continuous service (with earlier payout on death or permanent disability), calculated as (years of service × last drawn basic salary + dearness allowance × 15) ÷ 26, and is tax-free up to ₹20 lakh in the private sector. One change from the new wage code is genuinely important here: because allowances (HRA, special allowance, and so on) are now capped at 50% of total remuneration for the purposes of calculating “wages,” anything paid above that cap gets reclassified back into the wage base — which for many employees with heavily-loaded allowance structures will actually increase the gratuity and leave-encashment amounts they’re owed compared to before. Fixed-term contract employees also now qualify for pro-rata gratuity after just one year, rather than needing to complete five years, a genuine improvement for contract and project-based staff whose contracts simply aren’t renewed.
Provident Fund balances are yours regardless of why you left — you can transfer them to a new employer’s EPF account, or withdraw fully after two months of continuous unemployment (partial withdrawal is permitted earlier, for specific purposes). Leave encashment for any earned/privilege leave you haven’t used is a standard part of full and final settlement, and any earned but unpaid bonus under the Payment of Bonus Act (where applicable) should also be included.
On tax: statutory retrenchment compensation calculated under the 15-days-per-year formula is tax-exempt up to the lower of the actual amount received, ₹5 lakh, or the amount computed under the statutory formula — a limit that has stayed unchanged for a long time and has been criticised as too low relative to current salaries. Anything your employer pays you beyond that statutory formula — an enhanced ex-gratia package, a notice-period buyout, or a “goodwill” severance top-up — is generally taxable as salary income, so factor tax into any number your employer quotes you as your “severance.”
The safety net most people don’t know they may have
If your salary is (or was, before any recent raise) within the wage ceiling for coverage under the Employees’ State Insurance (ESI) Act — broadly, workers earning up to roughly ₹21,000 a month in non-managerial roles — and you’ve been contributing to ESI, you may be eligible for the Atal Beemit Vyakti Kalyan Yojana (ABVKY), a genuine unemployment allowance scheme run by the ESI Corporation that pays a percentage of your average wages for a limited period while you look for work. The scheme has been repeatedly extended and was recently prolonged through June 2027. It’s worth checking your ESI status even if you assume you’re not covered — but it’s also worth being clear-eyed that this scheme, by design, only reaches lower- and middle-income workers below the ESI wage ceiling; the large population of higher-earning white-collar and IT employees who are most visible in mass-layoff headlines generally have no equivalent state unemployment insurance to fall back on at all. This is arguably the biggest structural gap in India’s layoff safety net: the people least covered by “worker” protections are also the people with no unemployment insurance behind them.
So — who does this system actually benefit?
This is genuinely contested, and both sides have a real argument, so it’s worth laying out honestly rather than picking a side for you.
The case that it benefits employers and the economy. The government’s own framing — echoed by economists such as Arvind Panagariya, a former NITI Aayog vice-chairman and advisor to the government — is that India’s old labour law regime made hiring so legally risky and rigid (through the 100-worker permission threshold, multiple overlapping compliance laws, and slow dispute resolution) that employers avoided ever crossing that headcount, kept firms artificially small and informal, and hesitated to hire at all rather than face difficulty letting people go later. On this view, raising the threshold to 300 and consolidating 29 laws into four codes are pro-growth, pro-formalisation moves that should, over time, encourage bigger companies, more formal-sector hiring, and — the argument goes — more jobs overall, even if any individual worker’s dismissal protection looks thinner on paper.
The case that it benefits employers at workers’ direct expense. Trade unions and several labour-focused commentators point out, correctly, that raising the permission threshold from 100 to 300 workers exempts the overwhelming majority of Indian industrial establishments from any government scrutiny of layoff decisions at all; that the mandatory strike-notice period (now a uniform 14 days for all establishments, not just public utilities) combined with an open-ended conciliation process can make lawful strikes practically difficult to organise; that “Fixed Term Employment” provisions make it easier to keep workers on repeatedly-renewed short contracts without ever offering permanency or full retrenchment protection; and that the new re-skilling fund — 15 days’ wages, once — is a poor substitute for the job security or the more meaningful notice periods it effectively supplants for many workers at large firms that now fall under the higher threshold. Widespread protests by trade union federations followed the rules’ notification.
The honest middle finding, based on what the data actually shows. Both of those debates are largely about employees who count as “workers” — factory and industrial-category staff at larger, organised employers, where the law’s machinery genuinely applies and is genuinely being loosened. But the Blind survey data above suggests the bigger story for India’s fastest-growing, most visible layoff wave — IT, ITES, startups, GCCs, e-commerce — is different: a very large share of that workforce was never squarely inside “worker” protections to begin with, because of the managerial/supervisory carve-out, and the practical experience for those employees (short or no notice, severance offered as a private negotiation rather than a statutory entitlement) has changed less because of the new codes and more because employers in that sector were already operating largely outside the ID Act’s core protections under the old law too. If there’s a single honest answer to “who benefits,” it’s this: employers of every size get simpler, more uniform, and in the case of the 300-worker threshold, meaningfully less restrictive compliance; “worker”-category employees at large organised employers keep formal protections but see the bar for invoking government oversight raised considerably; and much of India’s white-collar salaried workforce — the group experiencing the most headline-grabbing layoffs — was already outside the strongest protections and remains so, now with a slightly better tax-free gratuity and PF position but no meaningful new job-security guarantee.
A practical checklist if you’ve just been laid off
None of the analysis above is worth much if it doesn’t help you act. If you’re going through this right now, here is a sequence worth working through, roughly in order.
Get everything in writing. Ask for a formal termination or retrenchment letter stating the reason, your last working day, and the components of your settlement — don’t rely on a verbal call or a Slack message, and don’t sign a release, waiver, or “full and final” acknowledgment on the spot before you’ve had time to check the numbers against what’s below.
Work out whether you’re a “worker” under the new Industrial Relations Code or governed by your state’s Shops and Establishments Act instead — your actual duties matter more than your title, so if your role was largely hands-on/technical/operational rather than genuinely managerial, you may have a stronger claim to statutory protection than your job title suggests. If you’re unsure, a labour lawyer or your local Labour Commissioner’s office can help you work this out for free or at low cost.
If you are a covered worker at an establishment with 300 or more workers, ask directly whether government permission was sought and obtained before your retrenchment — this is a real, checkable procedural requirement, and its absence is a genuine ground for challenge. At any size establishment, ask whether the last-in-first-out principle was applied within your category of role, and if not, what justification was recorded.
Check your settlement math independently rather than trusting the number in the offer letter: notice pay (per your contract or the statutory minimum, whichever is more favourable to you), retrenchment compensation if applicable, gratuity if you’ve crossed five years (or one year on a fixed-term contract), leave encashment, any earned bonus, and the 15-day re-skilling fund contribution if your employer is a covered establishment. Insist on full and final settlement within two working days of your last day — this is now a hard legal requirement under the Code on Wages, not a courtesy.
Ask explicitly about the tax treatment of each component — statutory retrenchment compensation is exempt up to a limit, but ex-gratia and enhanced severance above that are taxed as salary, and it changes what you should actually expect to land in your account.
Check whether you’re ESI-registered and within the wage ceiling; if so, look into the Atal Beemit Vyakti Kalyan Yojana unemployment allowance rather than assuming no support exists.
Get your relieving letter and experience letter in writing before you lose access to internal systems — these are often needed for your next job’s background check and are far harder to obtain after the fact.
If you believe you were dismissed for a discriminatory or retaliatory reason (pregnancy, disability, a harassment complaint, union activity), or that the process was procedurally non-compliant, you can raise a formal complaint with your state’s Labour Commissioner, and in unresolved cases escalate to an industrial tribunal or labour court, or pursue a civil claim for breach of contract if you fall outside “worker” protections — keep every email, appraisal record, and message thread, since documentation is what makes these claims viable.
Finally, know that non-compete clauses restricting you from joining a competitor after you leave are generally unenforceable under Section 27 of the Indian Contract Act, which voids agreements in restraint of trade — reasonable confidentiality and non-solicitation clauses can still bind you, but a blanket “you can’t work in this industry for a year” clause has very little legal force in India, so don’t let that language alone stop you from taking your next opportunity.
The bottom line
India’s layoff law has just gone through its biggest rewrite in over 70 years, but the rewrite mostly reshuffles protections that were already concentrated on a shrinking share of the workforce — organised-sector “workers” at large employers — while raising the bar for when government oversight kicks in at all. If you’re a factory or industrial “worker” at a large, organised employer, the law on paper still gives you real, enforceable minimums, even if the threshold for government scrutiny has moved further away from you. If you’re one of the millions of Indians in IT, ITES, consulting, retail, or managerial roles, the uncomfortable truth is that your strongest protections were probably always your contract, your negotiating leverage, and your own documentation — not the Industrial Disputes Act or its successor — and that hasn’t changed with the new codes. Knowing exactly which category you fall into, and exactly what you’re owed regardless, is the difference between accepting whatever number appears in a termination email and getting what the law — thin as it may be for you — actually entitles you to.
Disclaimer: This article provides general information and should not be treated as legal or tax advice. Labour-law implementation can vary by state, and employees facing a disputed termination or significant financial loss should consult a qualified labour lawyer or the relevant Labour Commissioner’s office.
Sources: KPMG · Omnivoo · Indian HRM · Corrida Legal · Kaanunu Kali · Blind survey · Bankbazaar · TaxGuru · ESIC · Upstox · Ahlawat & Associates · The Wire · Deccan Herald · Legodesk
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Ruchi Kumar is the associate editor at Entrepreneur News Network and TVW News India, where she leads editorial strategy, brand storytelling, and startup ecosystem coverage. With a strong focus on innovation, business, and marketing insights, he curates impactful narratives that spotlight India’s evolving entrepreneurial landscape. She has written extensively on fintech, AI and emerging startups.