Item 22 of the Concurrent List of the Seventh Schedule to the Constitution places "trade unions; industrial and labour disputes" as a subject on which both the Union and States can legislate. Items 23 and 24 add "social security and social insurance; employment and unemployment" and "welfare of labour including conditions of work, provident funds, employers' liability, workmen's compensation, invalidity and old age pensions and maternity benefits". This split is the constitutional foundation of every labour statute in India, and the four Codes reflect it exactly.
The "appropriate Government" test
Each of the four Codes defines "appropriate Government" in its Section 2. The definition varies slightly across Codes, but the operational test is stable across them.
The Central Government is the "appropriate Government" for establishments in certain listed sectors. These include the railways, mines, oilfields, major ports, banking, insurance, telecommunications, air transport, and Central Government undertakings. The list also picks up establishments in the sectors of controlled industries (where control is exercised by the Union under a Central Act) and any establishment carried on by or under the authority of the Central Government.
The State Government is the "appropriate Government" for everything else. In practice this means most private-sector employers (manufacturing, IT and ITeS, retail, hospitality, healthcare, real estate, professional services, and so on) fall under the State Government of the State in which the establishment is located.
Get this test right in writing before you do anything else on a compliance file. Which Government is "appropriate" decides:
- Which set of Rules applies (Central Rules or the relevant State Rules).
- Which authority you file returns with and pay contributions to.
- Which court, tribunal or officer has jurisdiction over disputes.
- Which inspector-cum-facilitator has visitation rights.
The State Rules picture as of July 2026
By the time the four Codes came into force on 21 November 2025, most States had circulated draft Rules under at least one of the four Codes for public comment. A number had notified final Rules under one or more Codes; a smaller number had notified final Rules under all four. Some States, especially those with less compliance-heavy establishment bases, had not started.
The Union Government, in Central Rules and in Ministry advisories, has taken the position that where a State has not notified its own Rules, the Central Rules apply by default. This is a sensible transitional reading but it is not an express savings clause in any of the Codes; it is a fill-the-gap approach that avoids leaving practitioners without any operational Rule. The Additional MoLE FAQs of 16 March 2026 support this reading in several answers.
How to handle the transitional gap in your practice
When you are advising an establishment in a State that has not yet notified Rules under a Code, take three steps.
First, apply the Central Rules and document your position. Write a short note-to-file that records: (a) the establishment's location and the relevant State, (b) the fact that State Rules under Code X have not yet been notified as of the date of the note, (c) that you are applying the Central Rules on Ministry-published guidance, and (d) that you will revisit if the State notifies Rules that diverge. Sign and date the note. Retain it in the compliance file.
Second, subscribe to your State labour department's notification feed. Every State labour department publishes notifications on its website. Set a periodic check (say, monthly) to catch new State Rules. Where possible, ask the department to add your establishment or your practice email to any circulars-and-notifications distribution list they maintain.
Third, use the Shram Suvidha portal as a cross-check. The Union Government's Shram Suvidha portal (shramsuvidha.gov.in) is the consolidated compliance interface for the Codes. Where a State has notified its Rules, the portal typically reflects the change in the return formats and the applicable authorities. If the portal for your State has been updated to a form that differs from the Central form, the State Rule has almost certainly been notified.
State-favourable derogations are usually preserved
One recurring principle across the Codes is that a State law more favourable to the worker survives, even where the Code otherwise applies. The MoLE FAQ of 16 March 2026 makes this explicit for leave carry-forward: where a State law (the FAQ cites Andhra Pradesh law permitting 60 days' carry-forward) is more favourable than the Central rule (30 days), the worker is entitled to the State benefit [L4-C1]. The same principle operates informally in several other areas. When you find a State provision that gives a worker more than the Central Rule does, do not assume the Code has overridden it. Read the State provision, read the Code section, and if they are not directly inconsistent (and the State provision only adds a benefit), preserve the State position.
The inverse is also worth stating. Where a State law gives a worker LESS than the Central Rule does, the Central Rule prevails and the State provision is inoperative to that extent. States retain the freedom to raise the floor above the Code, not to lower it below.
State thresholds under Section 77 IR Code
One specific derogation deserves attention because it is the biggest operational variable across States. Section 77 of the IR Code sets the layoff/retrenchment prior-permission threshold at 300 workers, but it expressly permits the "appropriate Government" to notify a HIGHER number [L4-C2]. The Ministry has not read this to permit a State to lower the threshold below 300; the express language is "such higher number". But in practice, some States have historically maintained a lower threshold under the ID Act and may take the position that their pre-Code framework survives. As of the date of this course, this is an area to check State-by-State before advising on an IR Code Section 77 matter.
Worked example: which Rules apply?
A software services company (private sector) has offices in Bengaluru (Karnataka), Gurugram (Haryana), and Kolkata (West Bengal). None of the sector-specific carve-outs (railways, mines, banking, telecom) apply. Which government is "appropriate", and which Rules govern which office?
- Appropriate Government: State Government of Karnataka for Bengaluru; State Government of Haryana for Gurugram; State Government of West Bengal for Kolkata.
- Rules that apply: For each office, the Central Rule where the corresponding State has not yet notified; the State Rule where notified. Karnataka has published Rules under all four Codes; Haryana has published Rules under some. West Bengal is slower. In practice: apply Karnataka Rules for Bengaluru, mixed Central+Haryana for Gurugram, and mostly Central for Kolkata, with a note-to-file recording the position for each office.
- Filings: Returns and registers are filed to each State labour department under the State Rule where notified; otherwise via the Shram Suvidha portal against Central Rules.
- Inspection: Inspector-cum-facilitator is appointed under the relevant State Rule; the officer with jurisdiction over Kolkata is not the same officer with jurisdiction over Bengaluru even though the parent company is the same.
A common failure mode here is to run one central compliance calendar without splitting by office. Under the Codes, the split by office is more consequential than it was under the old Acts because rule-making is more devolved.
Common mistakes
- Running one all-India compliance calendar under the Codes. Same as before, only worse: the split by office and by "appropriate Government" is more consequential now. Break your calendar down State-by-State.
- Reading Section 77 as a hard 300-worker floor across India. The Section permits the "appropriate Government" to notify a higher number. A few States may take the position that their pre-Code lower threshold survives via a savings mechanism; check State-by-State before advising.
- Assuming a more-favourable State law is overridden. Where a State provision benefits the worker more (say, longer leave carry-forward, higher minimum wage, wider gratuity), it survives. The Code is a floor, not a ceiling.
- Missing that "appropriate Government" is defined slightly differently in each Code. The core test is stable but every Code has its own Section 2 definition. Read the definition in the Code you are advising under, not the definition you memorised from another Code.