New Labour Codes: What Changes for Payroll

New Labour Codes · India · checked 2 October 2026

The four Labour Codes have been in force since 21 November 2025. Here is what changed for payroll, and what to do about it.

Written for employers, HR and payroll teams and CAs. Each point below is checked against the Codes, the Central Rules of 8 May 2026 and Ministry of Labour notifications. Sources are listed at the end.

4Codes: Wages, Social Security, OSH and Industrial Relations
29central labour laws replaced
21 Nov2025: the Codes came into force
Draftstate rules in most states, so old state forms continue for now

The four Labour Codes at a glance

Which law now governs each part of payroll, and the old Acts it replaced.

Code on Wages, 2019

Replaced: Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act, Equal Remuneration Act

The one definition of “wages” (the 50% rule), minimum wages, pay dates, deductions and fines, overtime pay and statutory bonus.

Code on Social Security, 2020

Replaces nine laws, including: ESI Act, Payment of Gratuity Act, Maternity Benefit Act, Employees’ Compensation Act

PF, ESI, gratuity (including for fixed-term staff) and maternity benefit. Uses the same definition of wages.

OSH Code, 2020

Replaced 13 laws, including: Factories Act, Contract Labour Act, Inter-State Migrant Workmen Act

Working hours, annual leave, overtime consent, women at night, appointment letters, health checks and establishment registration.

Industrial Relations Code, 2020

Replaced: Industrial Disputes Act, Trade Unions Act, Industrial Employment (Standing Orders) Act

Standing orders, layoffs, retrenchment and disputes. It touches payroll mainly at exit, through layoffs and retrenchment.

What changed for payroll

1. The 50% wage definition

Under the Code on Wages, “wages” means basic pay, dearness allowance and retaining allowance. Some items are left out, such as HRA, conveyance and the employer’s PF contribution. The catch: if those excluded items add up to more than 50% of total pay, the amount above 50% is added back to wages. The Social Security Code uses the same definition, so the 50% rule affects gratuity, bonus, overtime and leave encashment, and can affect PF.

Worked example: monthly pay of ₹50,000, with basic ₹15,000 and ₹35,000 in allowances that the Code excludes (HRA, conveyance and similar).

Before the Codes Under the Codes
Basic + DA ₹15,000 ₹15,000
Excluded allowances ₹35,000 ₹35,000 (70% of pay)
Added back (above 50%) — ₹10,000
Wages for statutory purposes ₹15,000 ₹25,000
Employee PF, 12% (up to the ₹25,000 ceiling) ₹1,800 ₹3,000
Employer PF, 12% ₹1,800 ₹3,000
Gratuity after 5 years (15/26 × wages × 5) ₹43,269 ₹72,115

If the CTC stays the same, the higher PF comes out of take-home pay. The alternative is to restructure salaries so that basic + DA is at least 50% of pay. The PF wage ceiling became ₹25,000 on 17 September 2026; see the PF calculator.

2. Pay dates, deductions and exits

By the 7th
Monthly wages paid by the 7th of the next monthThis now applies to every employer, whatever its size, and to every employee, whatever their salary.
2 days
Full and final settlementWages due to a leaving employee must be paid within two working days. This applies to resignations as well as dismissals and retrenchment.
Max 50%
Total deductions capped at 50% of wagesFines are limited to 3% of wages, must be recovered within 90 days and recorded in a fines register.

3. Leave, overtime and working conditions

180 days
Annual leave after 180 days worked (was 240)One day of leave for every 20 days worked. Carry-forward is capped at 30 days, and anything above 30 is paid out at year end. According to the Ministry’s FAQs, this applies to “workers”, which excludes managers and supervisors earning above ₹18,000 a month.
2× wages
Overtime at twice the wages, with the worker’s consentUnder the OSH Code, overtime needs the worker’s consent. Hours limits and quarterly caps still differ by state, so check your state’s rules.
Consent
Women can work before 6 am or after 7 pmOnly with their consent and with the safety measures the rules require.
Age 40+
Free annual health check-upFor workers aged 40 and above, paid for by the employer.

4. Bonus, gratuity and maternity

Bonus
Eligibility up to ₹21,000 a month of wagesBonus is worked out on ₹7,000 or the minimum wage notified by the Central Government, whichever is higher (S.O. 4710(E) and 4711(E), 25 August 2026, effective from 21 November 2025). Pay it by 30 November for an April–March year. If your state’s minimum wage is higher, take advice. See what is statutory bonus.
1 year
Gratuity for fixed-term employees after one yearPermanent employees still qualify after five years. Gratuity is now worked out on Code wages, so the 50% rule applies.
26 weeks
Maternity benefit26 weeks for women who have worked at least 80 days, a medical bonus of ₹3,500, and a creche for establishments with 50 or more employees.

5. Paperwork and registration

Everyone
Appointment letters for all employeesRequired under the OSH Code. For existing staff, letters were due by 21 February 2026. If you missed that date, issue them now.
10+ staff
Establishment registrationEstablishments with 10 or more employees must register under the OSH Code. Existing units must update their details on the Shram Suvidha portal. The Central Rules give a deadline of about 8 November 2026; check the exact date on the portal.
By 28 Feb
One unified annual return (Form XVII)Central-sphere establishments file a single annual return instead of separate ones under each old Act. State establishments should follow their state’s forms until the state’s rules are final.

What is still pending: state rules

The Codes apply everywhere. The forms you use depend on your state.

Labour is shared between the Centre and the states, and each state must notify its own rules under the Codes. The Central Rules were notified on 8 May 2026. Most state rules were still in draft when we checked. A few states, including Gujarat, Rajasthan and Andhra Pradesh, have notified final OSH rules.

Until a state’s rules are final, its old forms and registers continue under the Codes’ savings clauses, as long as they don’t conflict with the Codes. Where the Code text says something different, the Code applies now. That covers the 50% wage definition, leave after 180 days, settlement in two working days, overtime consent, women’s night-work consent and appointment letters. Shops & Establishments Acts are state laws and remain in force.

Example: Maharashtra’s Labour Code rules are still drafts, so factories there keep Forms 17, 20 and 29 and file Form 27, and shops keep Form Q and file Form R. See Maharashtra Shops & Establishments and factory compliance.

Employer checklist

Ten things to do now if you haven’t already.

  1. Test every salary structure against the 50% rule. Add up the excluded allowances. If they are more than half of total pay, work out the new “wages” figure.
  2. Re-run PF, gratuity, bonus and leave encashment on those wages, and decide whether to restructure CTC or accept lower take-home pay. Explain the change to employees in writing.
  3. Pay salaries by the 7th and set the payroll lock date so you can meet it.
  4. Settle every exit within two working days, including resignations. Agree the process with finance before the next exit.
  5. Check deductions: keep total deductions within 50% of wages, keep fines within 3% and keep a fines register.
  6. Update leave policies: annual leave after 180 days, 1 day per 20 days worked, a 30-day carry-forward cap with year-end payout for workers.
  7. Collect overtime consent and pay overtime at twice the wages. Collect women’s consent before night shifts.
  8. Issue appointment letters to anyone who doesn’t have one, and list fixed-term staff for gratuity after one year.
  9. Register or update your establishment on Shram Suvidha if you have 10 or more employees, before about 8 November 2026.
  10. Put the new dates in your calendar: wages by the 7th, PF and ESI by the 15th, bonus by 30 November, the annual return by 28 February. Then follow your state’s rule notifications.

How HivePayroll helps

Built into payroll. It warns you and never blocks a payroll run.

PF at the new ceiling

PF is calculated at the ₹25,000 wage ceiling from 17 September 2026, and the ECR file comes from the same payroll run as the payslips.

Exit deadline warning

When someone leaves, HivePayroll shows the two-working-day settlement deadline under the Code on Wages, so it doesn’t slip.

Compliance calendar

Every due date in one calendar, with email reminders until each item is marked as filed. See the payroll compliance calendar.

Statutory bonus can be paid in a payroll run as a one-time earning or as a monthly component, with TDS worked out. We re-check the rules against official sources as states notify their rules. We cover every rule notified in your state and update the app as states notify more, so we don’t claim to be fully compliant while most state rules are still drafts.

Frequently asked questions

Are the new labour codes in force?

Yes. All four Codes (the Code on Wages, the Code on Social Security, the OSH Code and the Industrial Relations Code) came into force on 21 November 2025, and the Central Rules were notified on 8 May 2026. Most states’ rules are still drafts, so older state forms continue where they don’t conflict with the Codes.

What is the 50% wage rule in the labour codes?

“Wages” means basic pay, dearness allowance and retaining allowance. If allowances the Code excludes, such as HRA and conveyance, are more than 50% of total pay, the excess is added back to wages. That higher figure is used for gratuity, bonus and other statutory payments, and can affect PF.

Will my take-home salary fall under the new labour codes?

Only if more than half your pay is in excluded allowances. Then statutory wages rise, and so do PF contributions. If your CTC stays the same, the extra employee PF (and any employer PF counted within CTC) reduces take-home pay, while retirement savings and gratuity go up.

How soon must full and final settlement be paid?

Within two working days of the employee leaving, whether they resigned, were dismissed or were retrenched, under section 17(2) of the Code on Wages.

Do fixed-term employees get gratuity under the labour codes?

Yes. Under the Code on Social Security, a fixed-term employee gets gratuity after one year of service. Permanent employees still need five years.

Has the leave eligibility changed?

Yes. Under the OSH Code, a worker earns annual leave after 180 days of work in a year (earlier 240), at one day for every 20 days worked. Up to 30 days can be carried forward, and anything above that is paid out at year end. State Shops & Establishments Acts may set different leave rules for shops and offices.

Sources

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Checked on 2 October 2026 against the Codes, the Central Rules and Ministry of Labour notifications. State rules are changing, and some points (such as the Shram Suvidha deadline and how bonus works where a state’s minimum wage is higher) may be clarified later. This page is a guide, not legal advice. For a specific case, check with your labour law consultant.