The "Compliance Collision": When POSH Meets the New Labour Codes

As of November 21, 2025, India has officially entered the era of the New Labour Codes, reshaping the foundations of employment law. HR teams are racing to realign payroll structures, leave rules, and social security contributions.

But in this compliance rush, a dangerous blind spot has emerged.

Most organisations are treating the POSH Act and the New Labour Codes as two separate, parallel compliance tracks.

They are not.

Our legal analysis shows that the Wage Code, Social Security Code, and Industrial Relations Code have created unexpected deadlocks, loopholes, and compliance vacuums that can make your existing POSH framework unenforceable in real-world scenarios.

Below is the operational truth of how the new laws conflict with your POSH mechanisms—and the immediate policy fixes you must roll out before your organisation faces a crisis.

1. The Wage Code vs. POSH Penalties: The "Deduction Deadlock"

Under the POSH Act, the Internal Committee (IC) holds the power to recommend deducting monetary penalties from a respondent's salary to compensate the aggrieved woman. This is a standard, effective deterrent.

However, the Code on Wages, 2019 throws a wrench in this machinery. It mandates that total deductions from an employee's salary (including PF, tax, home loan recovery, and fines) cannot exceed 50% of the wage in a single wage period.

Imagine your IC concludes a high-stakes investigation and levies a INR 2 Lakhs fine on a senior manager. If that manager already has a heavy home loan deduction or a high voluntary PF contribution, the statutory 50% cap will block you from recovering the fine immediately.

The harasser effectively gets an "installment plan" for their punishment, turning a penalty into a monthly annoyance. Worse, if you force the deduction, you are now in violation of the Wage Code, exposing the company to statutory fines.

Corrective Action: You must immediately update your POSH Policy to include a specific Recovery Clause. This clause should explicitly state that:

• If statutory deduction limits block the full recovery of a penalty, the company reserves the right to direct the respondent to pay the remaining amount directly via Demand Draft or Cheque, bypassing the payroll route entirely.

• In cases of termination, the company reserves the right to withhold the full amount from the Full & Final Settlement.

2. The IR Code vs. Termination: The "Misconduct Vacuum"

To legally fire a permanent workman for sexual harassment, the act must be explicitly listed as "Misconduct" in your Certified Standing Orders.

Previously, Standing Orders were mandatory for firms with 100+ workers. The new Industrial Relations (IR) Code, 2020 raises this threshold to 300 workers. This becomes tricky if you are an employer for a mid-sized firm (e.g., 150 employees), you are no longer legally required to maintain Certified Standing Orders. Many companies will let these lapse to reduce administrative burden.

You are stepping into a legal void. Without Standing Orders, your formal definition of "Misconduct" vanishes. If you terminate a workman based on an IC report, they can challenge it in Labour Court with a simple defence: "Sexual Harassment was not formally notified as misconduct in my conditions of service."

Corrective Action: Do not rely on "implied" rules. If you fall below the 300-worker threshold:

• Issue "Individual Service Condition Letters"or a comprehensive "Company Handbook" to every employee.

• Explicitly list Sexual Harassment as "Serious Misconduct" liable for immediate termination without notice pay.

• Ensure every employee signs an acknowledgement of this handbook.

3. The Social Security Code vs. Gig Economy: The "Liability Shift"

For years, companies have shielded themselves from liability by labelling delivery partners, drivers, freelance agents, and on-ground platform workers as “independent contractors.”

That shield is now breaking.

The Social Security Code, 2020 formally recognises Gig Workers and Platform Workers and mandates aggregator contributions. Alongside this, the OSH Code expands the definition of “employee” to include individuals working directly or through an agency.

The Turning Point: The OLA Case

A critical development shaping this shift is the Karnataka High Court’s ruling analysed in the article:👉 https://www.aristolegal.co.in/post/ola-case-analysis-insights-into-employer-employee-relationship

The analysis highlights how the court looked beyond labels like “driver-partner” and examined the platform’s actual level of control — routes, communications, incentives, behavioural monitoring, and even ownership of vehicles.

The court’s approach signals that substance matters more than terminology.If the platform exercises operational control, courts may treat gig workers as employees for the purpose of liability — including in POSH contexts.

This means that if a gig worker harasses a customer, colleague, vendor, or employee, an organisation can no longer confidently hide behind the “independent contractor” argument.

Corrective Action: You don’t have to treat gig workers like full-time staff — but you cannot exclude them from your POSH ecosystem either.

• Expand your POSH Policy to explicitly cover gig workers, platform workers, contingent staff, interns, trainees, and agency hires.

• Create a Gig Worker Redressal Protocol, separate from your employee disciplinary process, including immediate temporary disabling of platform ID or access card, a lightweight but compliant inquiry process, a reporting flow that connects to your IC without bureaucratic delays.

• Update vendor / aggregator contracts to include POSH obligations and cooperation clauses.

Conclusion:

The new Labour Codes were designed for ease of business, but they have raised the bar for compliance integration.

Your Action Plan:

• For Penalties: Add a "Direct Payment" clause to bypass the 50% wage deduction cap.

• For Termination: If you have fewer than 300 staff, define "Misconduct" in individual appointment letters immediately.

• For Gig Workers: Accept the new link created by the Social Security Code and extend your anti-harassment protocols to cover them.

  
  

Don't let a labour law update become a POSH loophole.

Patch your policy now — before a case reveals the gap for you.