India’s new labour codes are expected to significantly change the compliance and payroll framework for businesses across sectors. These reforms consolidate multiple existing labour laws into four labour codes with the objective of simplifying compliances, improving employee protection, and increasing uniformity across states.
For employers, the implementation of these provisions may directly impact salary structures, payroll processing, HR documentation, employee onboarding, and exit formalities.
Major Changes Under the New Labour Codes
1. Appointment Letter Mandatory
Employers are required to issue formal appointment letters to employees. This increases documentation and record-keeping responsibilities for businesses.
2. Changes in Salary Structure
The definition of “wages” has been standardised. In many cases, the basic salary component may need to constitute at least 50% of total remuneration.
This may impact:
- PF contribution
- Gratuity liability
- Bonus calculations
- CTC structuring
3. Timely Salary Payments
Salaries are generally required to be paid within prescribed timelines, commonly by the 7th day of the succeeding month.
4. Digital Salary Payments & Salary Slips
Employers are encouraged to maintain proper digital payroll records and issue salary slips and employment-related documents.
5. Faster Full & Final Settlement
Full & final settlements upon resignation, termination, retrenchment, or layoff are proposed to be completed within a very short timeline, increasing pressure on HR and finance teams.
6. Overtime Rules
For applicable establishments, overtime wages may need to be paid at twice the normal rate of wages.
7. Gratuity for Fixed-Term Employees
Fixed-term employees may become eligible for gratuity after completion of one year of service, unlike regular employees where the existing five-year condition generally continues.
What Businesses Should Do
Companies should proactively review:
- Employment agreements
- Salary structures
- Payroll software and systems
- HR policies and SOPs
- Attendance and overtime mechanisms
- Employee exit procedures
Final Thoughts
The new labour codes are not merely a legal change — they represent a major operational and compliance shift for businesses. Employers who prepare early will be better positioned to avoid penalties, employee disputes, and payroll disruptions.
Businesses are advised to conduct a labour law compliance review before the implementation becomes fully effective.
Need assistance in implementing the New Labour Codes?
We assist businesses in reviewing payroll structures, employment documentation, HR policies, labour law compliances, and internal processes to ensure smooth transition and regulatory compliance under the new labour framework.
Author
Pavan Goyal and Associates (Chartered Accountants)
Office No. B212, GO Square, Mankar Chowk, Wakad, Pune 411057
Email – office@goyalca.com
Contact – 9762763351