India’s labour law framework underwent a major restructuring on November 21, 2025, when the four Labour Codes came into effect. These codes brought together 44 central labour laws into four categories covering wages, social security, industrial relations, and occupational safety.
However, this consolidation has not necessarily made compliance easier for employers. Salary definitions, wage calculation rules, and several eligibility thresholds have changed. Companies that have not reviewed their existing payroll structures and HR policies against the new requirements may still have compliance gaps that need attention.
This article explains the key labour law requirements for Indian employers, including recurring compliance obligations, changes in salary and wage calculations, statutory contributions, and the areas where businesses commonly make compliance mistakes. It also covers what companies need to review to keep their payroll and HR processes aligned with the applicable labour laws.
The Four Labour Codes Every Indian Employer Now Operates Under
| Labour Code | Replaces | Key Areas Covered | Effective Date |
| Code on Wages, 2019 | Payment of Wages Act, Minimum Wages Act, Equal Remuneration Act, Payment of Bonus Act | Minimum wages, wage payment timelines, bonus obligations, equal pay for equal work | Nov 21, 2025 |
| Code on Social Security, 2020 | EPF Act, ESI Act, Gratuity Act, Maternity Benefit Act, and 5 others | PF, ESIC, gratuity, maternity benefits; extended to gig and platform workers | Nov 21, 2025 |
| Industrial Relations Code, 2020 | Industrial Disputes Act, Trade Unions Act, Industrial Employment (Standing Orders) Act | Retrenchment thresholds, layoff rules, strike notice requirements, standing orders | Nov 21, 2025 |
| Occupational Safety, Health and Working Conditions Code, 2020 | Factories Act, Contract Labour Act, Mines Act, and 10 others | Working hours, safety standards, contract labour regulation, inter-state migrant workers | Nov 21, 2025 |
The Code on Wages and the Code on Social Security have the most direct impact on day-to-day payroll operations. The Industrial Relations Code matters most when companies are restructuring or managing exits at scale. The Occupational Safety Code is most relevant for manufacturing, construction, and companies employing contract workers.
| The Labour Codes are central legislation but require state rules to become operational at the state level. Most major states including Maharashtra, Karnataka, Rajasthan, and Uttar Pradesh have notified their rules. If your state hasn’t, certain provisions default to the central rules or remain under the older acts. Verify your state’s current status before changing payroll structures based on the new codes alone. |
Minimum Wages Under the Code on Wages: What Changed
The Code on Wages introduced a national floor wage, a minimum below which no state can set its rates. As of FY 2026-27, the national floor wage is ₹176 per day, though most states notify rates well above this.
The most significant change is the definition of wages. The code defines wages as basic pay plus dearness allowance plus retaining allowance, and requires this figure to be at least 50% of total CTC. Allowances HRA, travel, food, special pay cannot collectively exceed 50% of CTC.
This 50% basic rule directly affects PF contributions, gratuity calculations, and bonus eligibility. Companies that kept basic pay low to reduce statutory contribution costs need to restructure salary components. Many haven’t, and the exposure accumulates with every payroll run.
Provident Fund and ESIC Compliance Obligations
Provident Fund (PF): Employee contribution is 12% of basic + DA; employer contributes the same. The statutory wage ceiling for PF calculation is currently ₹15,000/month, meaning contribution is mandatory on up to ₹15,000 of basic + DA even if the employee earns more. A proposed revision to ₹25,000 has not yet been formally notified do not implement it until the EPFO gazette notification is published.
ECR filing: The Electronic Challan cum Return must be submitted to EPFO by the 25th of the following month, with contribution deposited by the 15th. A mismatch between the deposit and the ECR triggers a member passbook discrepancy, which generates EPFO notices that are time-consuming to resolve.
ESIC: Applicable where the establishment has 10 or more employees and an employee earns ₹21,000/month or below (₹25,000 for persons with disability). Employee contribution is 0.75% of gross wages; employer contribution is 3.25%. Both are deposited by the 15th of the following month. ESIC provides medical, maternity, disability, and death benefits making it one of the most valuable statutory benefits most employees in the coverage bracket will ever receive.
Late PF deposit attracts 12% per annum interest plus damages at 1% per month (a June 2024 gazette revision replaced the earlier graded 5–25% structure). Late ESIC deposit attracts 12% simple interest and, for persistent default, prosecution under Section 85 of the ESI Act.
Gratuity, Bonus, and Maternity Benefit Obligations
Gratuity: Payable after 5 years of continuous service. Formula: (last drawn basic + DA) × 15/26 × years of service. Under the Code on Social Security, gratuity now applies to fixed-term contract employees on a pro-rata basis from day one, a significant change from the earlier 5-year threshold for this category.
Bonus: Applies to establishments with 20+ employees, for employees earning up to ₹21,000/month. Minimum is 8.33% of annual wages; maximum is 20%. Must be paid within 8 months of the close of the accounting year. Companies frequently treat this as optional.
Maternity benefit: 26 weeks of paid leave for the first two children; 12 weeks for the third onwards. Applies to establishments with 10+ employees. Creche facilities are mandatory at 50+ employee establishments. Dismissing or reducing pay during maternity leave is a prosecutable offence.
State-Level Obligations That Sit Alongside Central Law
Central labour law covers the baseline. States layer on their own requirements, and these vary significantly.
Professional Tax (PT): Levied by the state on salaried employees. Rates, slabs, and deposit deadlines differ by state. Karnataka’s slab goes up to ₹200/month; Maharashtra’s goes up to ₹2,500/year (collected at ₹200/month for 11 months with one month at ₹300). Companies operating across multiple states need a separate PT registration in each state where employees are located.
Labour Welfare Fund (LWF): Applicable in most states, contributed by both employer and employee. Contribution amounts and schedules vary many states collect twice yearly (June and December). Companies often miss LWF because it doesn’t appear in the central compliance calendar.
Shops & Establishments Act: State-specific registration and renewal requirements for commercial establishments. Governs working hours, overtime limits, rest intervals, and leave entitlements each state sets its own rules. Non-renewal of S&E registration can trigger labour inspection notices.
How to Track Labour Law Compliance Without Missing Deadlines
The biggest challenge with labour law compliance in India is not understanding the requirements but managing them across different central and state authorities. Each authority has its own filing deadlines, procedures, and penalties for non-compliance. A company with employees across five states may need to track 30 to 40 different compliance activities every year.
One way to simplify this process is to use payroll software that generates statutory reports and filing-ready documents directly from payroll data. When PF ECR files, ESIC challans, and TDS calculations are generated using the same information used to calculate employee salaries, businesses can avoid repeated data entry and manual reconciliation. This also reduces the chances of errors in payroll and statutory records.
Waggex helps businesses track recurring central compliance requirements, including PF, ESIC, TDS, gratuity calculations, and Full and Final (F&F) settlement timelines alongside payroll processing. Its compliance module generates filing-ready outputs during each payroll cycle, helping HR and finance teams manage deadlines, maintain accurate records, and reduce their dependence on spreadsheets and manual follow-ups.
Labour law obligations are based on central legislation and state notifications current as of FY 2026-27. The four Labour Codes became effective November 21, 2025; state-level rules vary and should be verified against your state’s current gazette notifications. PF wage ceiling revision (₹15,000 to ₹25,000) has been proposed but is not yet formally notified. Consult a qualified employment law adviser before restructuring salary components or changing statutory contribution calculations.