New Labour Codes 2026: HR & Payroll Checklist for Employers in India

Your payroll can run successfully and still be configured incorrectly for a new compliance framework. That is the practical challenge facing HR teams in 2026.

The Government of India made the Code on Wages, 2019; Industrial Relations Code, 2020; Code on Social Security, 2020; and Occupational Safety, Health and Working Conditions Code, 2020 effective from 21 November 2025, consolidating 29 central labour laws. The HR question is no longer simply, “Have we read the Codes?” It is, “Have our salary structures, attendance records, payroll rules and employee workflows been checked against them?”

The Four Labour Codes — in Plain HR Language

1. Start With the New Wage Definition — Not the Payslip Design

One of the most searched parts of the Labour Codes is the so-called “50% wage rule.” It is often simplified online as “Basic must be 50% of CTC.” That is not the most accurate way to understand the official rule.

Ministry FAQs explain that where specified allowances and benefits exceed 50% of remuneration, the excess is added back to wages for statutory purposes. The March 2026 additional FAQ also clarifies that overtime allowance forms part of the 50% calculation and explains how specified statutory components are treated.

What HR should audit

• Basic pay, DA and retaining allowance where applicable
• HRA and other allowances
• overtime payments
• employer PF/pension and statutory bonus treatment
• reimbursements and components that may sit outside the wage definition
• salary structures created years ago and never revisited

2. Re-Test Payroll, Gratuity and Fixed-Term Employee Rules

A wage-definition change can affect more than the visible payslip. Ministry FAQs state that the revised wage definition applies to gratuity from 21 November 2025. They also describe special treatment for fixed-term employees, including pro-rata gratuity in applicable cases and eligibility after one year under a fixed-term contract in the March 2026 clarification.

That means payroll teams should re-test calculations that depend on the statutory wage base rather than assuming last year's configuration remains correct.

3. Review Full & Final Settlement and Overtime Workflows

Section 17 of the Code on Wages provides that wages payable on resignation and certain other exits are to be paid within two working days, subject to the Code's qualifications and any different applicable time limit provided by the appropriate government.

For HR teams, the operational question is whether the exit process can move fast enough. If attendance lock, leave settlement, asset recovery, manager approval and payroll clearance still happen through email, the bottleneck may be the workflow rather than the calculation.

Overtime also deserves a clean data flow. Working-time and attendance records should support the applicable overtime calculation instead of forcing payroll to reconstruct hours at month-end.

4. Appointment Letters, Attendance and Employee Records Matter More

The Labour Ministry's official summaries identify appointment letters as part of the new framework. The Codes also extend or formalise protections around working conditions, social security and workforce categories.

That makes master-data quality more important. Employers should be able to identify an employee's joining date, employment category, location, entity, salary structure, shift/attendance rules and core documents without searching five systems.

5. September 2026 Update: EPFO Wage Ceiling Is Now ₹25,000

This is separate from the four Labour Codes, but it is one of the most important current payroll changes for employers. The Union Government announced that the statutory wage ceiling for mandatory EPFO coverage increased from ₹15,000 to ₹25,000 per month with effect from 17 September 2026.

Employers should review onboarding, employee eligibility, EPF/EPS/EDLI configuration and payroll testing for employees affected by the revised ceiling.

Labour Codes 2026: HR & Payroll Checklist

The 30-Minute HRMS Readiness Test

1. Can payroll show which salary structures may be affected by the wage definition?
2. Can attendance and overtime flow into payroll without Excel?
3. Can HR identify fixed-term employees instantly?
4. Can the system produce employee, wage and attendance records without manually combining files?
5. Can rules vary by entity, location or employee category where needed?

How an HRMS Can Support Labour-Code Readiness

Software does not replace professional legal or payroll advice. What it can do is remove the manual work that makes compliance harder to execute consistently.

A connected HRMS can bring employee master → attendance → leave → payroll → statutory configuration → documents → reports → exit into one controlled flow. That reduces duplicate entry, makes policy changes easier to test and improves the audit trail when HR needs to explain how a number was calculated.

Frequently Asked Questions