The New Labour Codes 2026 are changing how businesses in India approach wages, payroll processing, employee benefits, working conditions, social security, and statutory compliance.
India’s four Labour Codes came into effect on 21 November 2025, replacing and consolidating 29 central labour laws. In 2026, businesses are dealing with the practical implementation of the new framework, including the Central Rules notified on 8 May 2026.
The four Labour Codes are the Code on Wages, 2019; Industrial Relations Code, 2020; Code on Social Security, 2020; and Occupational Safety, Health and Working Conditions Code, 2020. Together, they consolidate 29 central labour laws into a more unified framework.
What Are the New Labour Codes in India?
The Indian government consolidated 29 central labour laws into four Labour Codes:
| Labour Code | Primary Focus |
| Code on Wages, 2019 | Minimum wages, payment of wages, deductions, bonus and wage definitions |
| Industrial Relations Code, 2020 | Industrial relations, trade unions, standing orders and retrenchment |
| Code on Social Security, 2020 | EPF, ESI, gratuity, maternity benefits and wider social security |
| Occupational Safety, Health and Working Conditions Code, 2020 | Working conditions, occupational safety, health, welfare and working hours |
The government states that the four Codes rationalise 29 existing central labour laws and simplify the compliance framework.
Why Do the Labour Codes Matter for Businesses?
The changes affect more than legal documentation.
They can influence:
- Payroll calculations
- Salary structures
- Wage definitions
- PF and other statutory calculations
- Gratuity
- Overtime
- Working hours
- Employee records
- Appointment letters
- Full & final settlement
- Statutory reporting
- HR policies
- Compliance workflows
This makes labour codes and HRMSpayroll compliance an increasingly important combination for organisations managing large employee databases.
What Has Changed Under the Labour Codes in 2026?
One of the biggest changes for businesses is the move from multiple central labour laws toward four consolidated Codes.
According to the Ministry of Labour & Employment’s 2026 compliance handbook, the framework reduces the number of registers from 84 to 8, forms from 181 to 73, and replaces 31 returns with a single electronic return framework.
The 2026 compliance environment also includes the Central Rules notified on 8 May 2026. States continue to have an important role because labour is a concurrent subject and state-level implementation and rules can affect employer obligations.
Key areas HR teams should review
Businesses should review:
- Salary and wage structures
- Employee classification
- Minimum wage compliance
- PF and ESI applicability
- Overtime calculations
- Working-hour records
- Appointment letters
- Employee service records
- Gratuity calculations
- Full & final settlement
- Statutory deductions
- State-specific requirements
How Labour Codes Affect Payroll Processing
Payroll is one of the areas most directly affected by the Labour Codes.
The Code on Wages introduces a standardised definition of “wages” for several statutory purposes. Certain allowances and excluded components can be added back when the excluded portion exceeds the prescribed 50% threshold. The Ministry’s FAQ clarifies that overtime allowance forms part of the 50% calculation, while certain statutory components such as employer PF/pension contributions and statutory bonus are considered in the remuneration calculation. Businesses should review their existing payroll management system to ensure salary components, deductions, overtime and statutory calculations are properly configured.
This does not simply mean that every employee’s basic salary must legally be exactly 50% of CTC. Instead, employers need to examine the wage components and apply the statutory definition correctly.
Payroll teams should review:
- Basic wages
- Allowances
- Overtime
- Employer statutory contributions
- Employee deductions
- Bonus
- Gratuity-related wage calculations
- PF calculations
- ESI calculations
- Minimum wage compliance
- Payslip information
The Code on Wages also places restrictions on deductions from wages, with the Ministry’s FAQ stating that deductions are capped at 50% of wages.
Why payroll automation matters
Manually calculating every statutory component becomes difficult when an organisation has hundreds or thousands of employees.
An HRMS can help HR and payroll teams maintain standardised salary structures, automate calculations, flag exceptions and maintain employee payroll records.
How Labour Codes Affect Salary Structure
Salary restructuring is one of the most discussed areas of the labour codes 2026 India framework.
The revised definition of wages can affect the base used for certain statutory benefits. If excluded allowances cross the prescribed threshold, the excess may be added back into wages for statutory calculations. HR teams should also review existing salary policies and salary compensation guidelines before restructuring employee pay.
For example, an organisation may have a salary structure containing:
- Basic Salary
- House Rent Allowance
- Special Allowance
- Conveyance Allowance
- Other Allowances
- Employer PF Contribution
- Bonus or other statutory components
HR teams should not simply change every employee’s salary structure to make Basic Salary 50% of CTC without first reviewing the applicable wage definition and statutory treatment.
Salary structure review checklist
Before changing employee compensation structures, businesses should:
- Review existing salary components
- Identify components included in the statutory definition of wages
- Calculate the applicable wage base
- Check PF and other statutory implications
- Review gratuity calculations
- Review bonus implications
- Compare old and revised payroll outcomes
- Communicate changes clearly to employees
- Validate the structure with qualified labour-law/payroll professionals where required
Impact on PF, ESI and Other Statutory Compliance
Social security is a major component of the Labour Codes.
Businesses should also review their broader compliance management system to maintain accurate statutory records and compliance workflows.
The government has stated that the Social Security Code expands social-security coverage to organised and unorganised workers, including gig and platform workers.
PF compliance
The government also announced in September 2026 that the wage ceiling for mandatory EPFO coverage was increased from ₹15,000 to ₹25,000 per month, effective 17 September 2026.
Because this is a significant current payroll change, employers should review how the revised EPFO ceiling applies to their workforce and payroll processes.
ESI compliance
The Ministry’s March 2026 FAQ states that, at that point, the existing ₹21,000 monthly wage threshold for ESI coverage continued to apply while the relevant implementation framework was being finalised.
Therefore, HR teams should avoid assuming that every PF and ESI threshold is automatically identical or that a change in one statutory threshold changes the other.
Other statutory areas
HR and payroll teams should also review:
- Gratuity
- Statutory bonus
- Maternity benefits
- Employee compensation
- Social security records
- Employee nominations
- Statutory returns
- Compliance documentation
Impact on Attendance, Working Hours and Overtime
Attendance data is increasingly important for labour code compliance.
Under the OSH Code framework, the standard working time is 8 hours per day and 48 hours per week, with flexibility in daily hours subject to applicable conditions, worker consent where required, and overtime payment. Overtime is payable at twice the rate of wages under the relevant provisions.
This means attendance systems should accurately capture:
- Employee clock-in
- Clock-out
- Shift timings
- Weekly working hours
- Overtime
- Leave
- Weekly rest
- Late attendance
- Early departures
- Attendance regularisation
Why attendance and payroll must be connected
Consider an employee who works additional hours.
The attendance system records overtime → payroll calculates overtime wages → statutory payroll records reflect the applicable wage components → payslip is generated.
An integrated attendance management system can connect attendance, leave, overtime and payroll workflows.
If these systems are disconnected, HR teams may have to manually transfer data, increasing the possibility of calculation errors.
An integrated HRMS for labour code compliance can connect attendance, leave, overtime and payroll workflows.
Labour Codes and Full & Final Settlement
Full & final settlement is another area HR teams should review.
Under the Code on Wages, where a worker is removed, dismissed, retrenched or resigns, wages payable are required to be paid within two working days, subject to the applicable legal framework and any relevant government-prescribed timelines.
A typical full & final settlement may include:
- Salary payable
- Unpaid wages
- Leave-related payments where applicable
- Overtime
- Bonus where applicable
- Gratuity where applicable
- Statutory deductions
- Notice-period adjustments
- Other recoveries or dues
Gratuity under the Labour Codes
The Social Security Code provides gratuity in specified circumstances, including termination, retirement, resignation, death or disablement and expiry of a fixed-term employment contract.
The Ministry’s FAQ states that the five-year continuous-service requirement is not necessary in cases such as death, disablement and expiry of fixed-term employment. It also states that fixed-term employees become eligible for gratuity when they have rendered service under the contract for one year.
This makes accurate employee tenure and wage records particularly important.
State-Wise Labour Code Compliance in India
Although the four Labour Codes provide a central framework, HR teams should not assume that one generic compliance checklist works identically for every state.
Labour is a subject involving both the Union and States, and states have responsibilities relating to implementation and rules. The Ministry has also been conducting regional and state-level programmes to support implementation of the Codes.
Therefore, businesses operating across multiple states should maintain a state-wise compliance matrix.
Example state-wise compliance matrix
HR teams should maintain a state-wise compliance matrix and regularly review HR compliance guidelines for applicable requirements.
| Compliance Area | What HR Should Verify |
| Minimum wages | Applicable state/category rates |
| Working hours | Applicable working-hour rules |
| Holidays | State-specific requirements |
| Leave | Applicable state and establishment rules |
| Shops & Establishments | State-specific applicability |
| Professional Tax | State-specific applicability |
| PF/ESI | Central statutory requirements |
| Labour welfare requirements | Applicable state provisions |
| Registers & returns | Applicable central/state requirements |
How HRMS Software Helps With Labour Code Compliance
Managing Labour Code compliance manually can become difficult as employee numbers increase.
An HRMS software can help businesses centralise employee information, attendance, payroll and statutory workflows.
Businesses can also refer to the HRMS guide to understand how HR technology can streamline core HR processes.
1. Automated payroll calculations
HRMS software can automate recurring payroll calculations based on configured salary components, attendance, leave, overtime and statutory rules.
2. Salary structure management
HR teams can define and maintain structured salary components and review the impact of changes before processing payroll.
3. Attendance and overtime integration
Attendance data can flow into payroll, reducing manual data entry and helping payroll teams process overtime accurately.
4. Statutory compliance support
An HRMS can help maintain payroll records and generate compliance-related reports required by the organisation.
5. Employee records
Businesses can maintain employee information, joining dates, salary details, attendance, leave and other HR records in one system.
6. Full & final settlement
HRMS workflows can help calculate employee dues, deductions and applicable settlement components when an employee leaves. Accurate employee records are essential for employee management and full & final settlement processes.
7. Payroll audit trail
Digital records make it easier for HR and finance teams to review payroll calculations and identify discrepancies.
Important: HRMS software supports compliance management, but software alone does not guarantee legal compliance. Employers must configure the system according to applicable laws, rules, notifications and state-specific requirements.
Labour Code Compliance Checklist for HR Teams
Use this checklist to review your organisation’s readiness for the new labour codes 2026.
Payroll Compliance
- Review salary structures
- Review the statutory definition of wages
- Check minimum wage applicability
- Review PF applicability
- Review ESI applicability
- Review statutory deductions
- Verify overtime calculations
- Verify payroll records
- Review payslip formats
Employee Documentation
- Issue appointment letters where required
- Maintain accurate employee records
- Maintain service records
- Verify employee joining dates
- Maintain nomination information
- Keep statutory documents updated
The government has specifically highlighted appointment letters as part of the Labour Code framework.
Attendance & Working Hours
- Track daily working hours
- Track weekly working hours
- Record overtime
- Maintain shift records
- Track weekly rest
- Maintain attendance history
- Review night-shift requirements where applicable
Full & Final Settlement
- Calculate unpaid salary
- Calculate applicable overtime
- Review leave-related payments
- Calculate gratuity where applicable
- Apply statutory deductions
- Complete settlement within applicable timelines
- Maintain settlement records
Multi-State Compliance
- Identify applicable state rules
- Maintain a state-wise compliance matrix
- Review minimum wage requirements
- Check Shops & Establishments requirements
- Review state-specific leave and holiday requirements
- Monitor regulatory updates
New Labour Codes 2026: What Should Businesses Do Now?
Businesses should not wait until a payroll issue occurs before reviewing compliance.
A practical approach is:
Step 1: Audit your current payroll structure
Identify salary components, statutory contributions, deductions, overtime and employee categories.
Step 2: Review the wage definition
Check whether your current salary structure needs adjustment based on the applicable definition of wages.
Step 3: Review statutory applicability
Verify PF, ESI, gratuity, bonus and other statutory obligations applicable to your workforce.
Step 4: Audit attendance data
Make sure attendance, shifts and overtime records are accurate and connected to payroll.
Step 5: Review employee documentation
Check appointment letters, employee records, service information and statutory documentation.
Step 6: Create a state-wise compliance matrix
If you operate across different states, document the applicable requirements for each establishment.
Step 7: Automate repetitive processes
Consider an integrated HRMS and payroll platform to reduce manual calculations and improve data consistency.
Step 8: Monitor regulatory updates
Labour compliance is not a one-time activity. HR teams should regularly monitor notifications, rules and state-level developments.
FAQs About Labour Codes 2026
India’s four Labour Codes are the Code on Wages, 2019; Industrial Relations Code, 2020; Code on Social Security, 2020; and Occupational Safety, Health and Working Conditions Code, 2020. They consolidate 29 central labour laws.
The four Labour Codes came into effect on 21 November 2025. The Central Rules were notified on 8 May 2026, making 2026 an important year for implementation and compliance.
The Labour Codes affect areas such as the definition of wages, salary components, statutory deductions, overtime, social-security contributions and other payroll-related calculations.
Not exactly. The relevant wage definition contains rules under which certain excluded components are added back when they exceed the prescribed threshold. Therefore, businesses should analyse the complete salary structure rather than applying a blanket “basic salary must be 50% of CTC” rule.
PF-related compliance needs to be reviewed as part of the Social Security Code framework. In addition, the government announced an increase in the EPFO mandatory coverage wage ceiling from ₹15,000 to ₹25,000 per month, effective 17 September 2026.
The Social Security Code includes ESI within the consolidated social-security framework. The Ministry’s March 2026 FAQ stated that the existing ₹21,000 monthly wage threshold for ESI coverage continued to apply at that point.
The OSH Code framework specifies 8 hours per day and 48 hours per week as standard, with permitted flexibility subject to applicable conditions. Overtime is payable at twice the wage rate under the relevant provisions.
For workers covered by the relevant provisions, wages payable following resignation, dismissal, removal or retrenchment are required to be paid within two working days, subject to the applicable legal framework and prescribed exceptions.
