New Labour Codes 2025 – The Ultimate Guide to Payroll Restructuring and Multi-State Compliance in India
Introduction: A Historic Shift in Indian Employment Law
India’s labour law ecosystem has, for decades, been characterised by complexity, fragmentation, and high compliance costs. Employers and professionals were required to navigate 29+ central labour laws, hundreds of state amendments, overlapping definitions, multiple registers, and inspector-driven enforcement.
To address these structural inefficiencies, the Government of India initiated the most ambitious labour law reform since Independence, consolidating the entire framework into four comprehensive Labour Codes.
Although these Codes were enacted between 2019 and 2020, 2025 marks the real inflection point, as:
- State rules are largely notified
- Digital compliance portals are stabilising
- Judicial interpretation has begun
- Employers are being actively scrutinised for wage restructuring and payroll compliance
This article provides a practical, compliance-oriented guide for employers, HR professionals, Chartered Accountants, and advisors.
1. The Four Labour Codes – An Overview
1.1 Code on Wages, 2019
Merged Laws
- Minimum Wages Act, 1948
- Payment of Wages Act, 1936
- Payment of Bonus Act, 1965
- Equal Remuneration Act, 1976
Objective
To introduce a uniform definition of wages, ensure minimum wage protection for all employees, guarantee timely payment of wages, and enforce gender neutrality in remuneration.
1.2 Industrial Relations Code, 2020
Replaces
- Industrial Disputes Act, 1947
- Trade Unions Act, 1926
- Industrial Employment (Standing Orders) Act, 1946
Objective
To balance employer flexibility with worker protection, streamline dispute resolution, rationalise retrenchment provisions, and modernise trade union regulations.
1.3 Code on Social Security, 2020
Consolidates
- Employees’ Provident Funds Act
- Employees’ State Insurance Act
- Payment of Gratuity Act
- Maternity Benefit Act
- Employee Compensation Act
- Unorganised Workers’ Social Security Act
Objective
To extend social security coverage to gig workers, platform workers, contract labour, and the unorganised sector.
1.4 Occupational Safety, Health & Working Conditions Code, 2020
Replaces
- Factories Act
- Contract Labour (Regulation & Abolition) Act
- Inter-State Migrant Workmen Act
- Central aspects of Shops & Establishments laws
Objective
To establish uniform safety standards, welfare norms, working conditions, and simplified licensing across establishments.
2. Applicability Under the New Labour Codes
2.1 Universal Coverage
One of the most transformative features of the new regime is near-universal applicability.
| Code | Applicability |
| Code on Wages | All employees, no wage ceiling |
| Social Security Code | Organised, unorganised, gig & platform workers |
| OSH Code | Threshold-based |
| Industrial Relations Code | Threshold-based |
Earlier exclusions based on wage ceilings or sector classifications have largely been eliminated.
3. Multi-State Applicability – “One Law, Different Rules”
Labour is a Concurrent List subject under the Constitution.
- Central Government → Acts & Model Rules
- States → State-specific Rules
Key Principles for Multi-State Employers
- Wage definition → Uniform nationwide
- Minimum wages → State-specific
- Registration → Can be centralised, but state details mandatory
- Inspections → State-wise, risk-based
4. Special Focus: West Bengal Compliance Landscape
West Bengal has:
- Notified rules under most Labour Codes
- Retained legacy compliance structures
- Adopted digital inspection mechanisms
Critical WB Compliance Points
- Minimum wages notified by skill & zone
- Labour Welfare Fund compliance continues
- Shops & Establishments registration remains mandatory
- Festival holidays are relatively higher
For employers operating in West Bengal + Maharashtra + Karnataka, payroll may be centralised, but compliance must be state-wise customised.
5. The Core Reform: Uniform Definition of “Wages”
5.1 Statutory Definition (Code on Wages, Section 2(y))
Included
- Basic Pay
- Dearness Allowance (DA)
- Retaining Allowance
Excluded
- HRA
- Conveyance
- Bonus
- Commission
- Employer PF contribution
- Gratuity
- Overtime
- Leave encashment
5.2 The 50% Rule – The Game Changer
Excluded allowances cannot exceed 50% of total remuneration.
Any excess is deemed as wages.
This single proviso has forced a complete redesign of salary structures across India.
6. Salary Structuring – Fixed vs Variable Pay
6.1 Fixed Components
- Basic Salary
- DA
- Fixed HRA
- Fixed Conveyance
- Fixed Special Allowance
6.2 Variable Components
- Performance bonus
- Sales incentives
- Productivity-linked incentives
- Profit-linked bonus (beyond statutory bonus)
Variable pay is excluded from wages only if genuinely performance-linked.
7. Practical Illustration – Before & After
Non-Compliant (Old Structure)
| Component | Amount |
| Basic | ₹20,000 |
| HRA | ₹40,000 |
| Special Allowance | ₹30,000 |
| Conveyance | ₹10,000 |
| Total | ₹1,00,000 |
× Wages = 20% | Allowances = 80%
Compliant Structure
| Component | Amount |
| Basic | ₹40,000 |
| DA | ₹10,000 |
| HRA | ₹20,000 |
| Special Allowance | ₹20,000 |
| Conveyance | ₹10,000 |
| Total | ₹1,00,000 |
√ Wages = 50% | Allowances = 50%
8. PF, Gratuity & Bonus – Clearing the ₹15,000 Myth
Key Clarification
The New Labour Codes do NOT impose a ₹15,000 basic wage cap
Provident Fund
- ₹15,000 ceiling continues under EPF Scheme
- Employer may voluntarily contribute on higher wages
- Labour Codes do not abolish this ceiling
Gratuity
- Calculated on statutory “wages”
- No ₹15,000 cap
- Higher wage base → higher gratuity liability
9. Working Hours & Leave
- 48 hours per week retained
- 4-day work week permitted (state-specific)
- Overtime at 2× wages
- Leave entitlements continue to be state-driven
West Bengal typically notifies more festival holidays, impacting annual productivity planning.
10. Industrial Relations & Fixed-Term Employment
- Standing Orders threshold increased to 300 employees
- Retrenchment permission required only above threshold
- Fixed-term employees entitled to parity benefits
- Pro-rata gratuity permitted
11. Compliance Checklist for Multi-State Employers
| Area | Action |
| Wage Structure | Redesign salary templates |
| PF & Gratuity | Recalculate liabilities |
| Minimum Wages | Apply state-wise |
| Registers | Digitise |
| Returns | Unified + state filings |
| Policies | Update HR manuals |
12. Key Challenges
- Increased payroll cost
- Employee resistance to CTC restructuring
- Legacy contracts
- ERP & payroll software changes
13. Strategic Way Forward
Employers should:
- Conduct salary audits
- Update appointment letters
- Train HR & payroll teams
- Maintain state-wise employee masters
- Undertake annual labour law audits
14. Conclusion
The New Labour Codes 2025 represent a paradigm shift in Indian employment law. While they increase transparency and statutory cost, they also deliver uniformity, predictability, and enhanced worker protection.
For multi-state employers, success lies in:
- Early wage restructuring
- State-wise compliance customisation
- Proactive advisory-led implementation
When implemented strategically, the Labour Codes are not merely a legal mandate—they form the foundation for a future-ready, ethical, and sustainable workforce in India.
*****
About the Author: CA Sanat Pyne, with over two decades of experience in the financial sector, is a trusted advisor for high-level financial engagements. His expertise spans financial accounting, auditing, taxation, project finance, and corporate compliance, providing robust solutions to complex regulatory challenges. Email: sanatpyne@gmail.com
Author Bio
