Key points
- The four Labour Codes are in force from 21 November 2025 and replace 29 central labour laws.
- There is one definition of wages. If excluded allowances such as HRA and conveyance are more than half of total pay, the excess counts as wages (the "50% rule").
- Monthly wages must be paid by the 7th of the following month. An employee who leaves must be paid within two working days.
- Overtime is paid at at least twice the normal rate of wages.
- Fixed-term employees get the same benefits as permanent staff, and gratuity after one year instead of five.
- Every worker gets an appointment letter, and workers above 40 a free annual health check-up.
The four Labour Codes at a glance
| Code | What it covers | What it means for payroll |
|---|---|---|
| Code on Wages, 2019 | Minimum wages, payment of wages, bonus, equal pay | Definition of wages, pay dates, deductions, overtime rate, floor wage |
| Code on Social Security, 2020 | PF, ESI, gratuity, maternity benefit, gig and platform workers | PF and ESI contributions, gratuity, the ₹25,000 PF wage ceiling |
| Industrial Relations Code, 2020 | Trade unions, standing orders, disputes, fixed-term employment | Fixed-term contracts and their benefits |
| Occupational Safety, Health and Working Conditions Code, 2020 | Safety, health, working hours, leave, welfare | Working hours, annual leave, health check-ups, women on night shifts |
1. One definition of wages, and the 50% rule
Under the Codes, wages include basic pay, dearness allowance (DA) and retaining allowance, plus any allowance that is not specifically excluded. Items left out include house rent allowance (HRA), conveyance allowance, overtime allowance, commission, statutory bonus, the employer's PF or pension contribution, gratuity and retrenchment compensation.
The 50% rule stops salary structures from keeping wages artificially low: if certain excluded items, such as HRA, conveyance, overtime and commission, together come to more than half of total pay, the amount above half is added back to wages. The Government can notify a different percentage, so check the current rule.
Worked example: ₹40,000 a month
| Component | Amount | Counts as wages? |
|---|---|---|
| Basic + DA | ₹10,000 | Yes |
| Special allowance | ₹8,000 | Yes (not excluded) |
| HRA | ₹18,000 | Excluded |
| Conveyance allowance | ₹4,000 | Excluded |
| Total pay | ₹40,000 |
Before the test, wages are ₹18,000. The excluded items are ₹22,000, which is ₹2,000 more than half of ₹40,000 (₹20,000). So ₹2,000 is added back and wages become ₹20,000. PF (up to the ₹25,000 PF wage ceiling) and gratuity are worked out on this wage figure, so run the test for every salary structure, not only for new joiners.
2. Paying wages on time
- Monthly wage period: pay before the end of the 7th day of the following month. For example, October wages by 7 November.
- Employees who leave: when an employee resigns, is removed, dismissed or retrenched, or the establishment closes, pay the wages due within two working days. Plan full and final settlement around this.
- Deductions: only authorised deductions (such as absence, advances, PF, ESI, taxes and fines allowed by law), and the total deductions in a wage period cannot exceed 50% of the wages.
- Wage slips: give every employee a wage slip. Electronic payslips by email or app are allowed. See our salary slip format guide.
3. Overtime and working hours
Overtime must be paid at not less than twice the normal rate of wages. For many kinds of work, overtime needs the worker's consent. Working hours are capped at 48 a week, and the daily limit (between 8 and 12 hours) depends on the rules for your kind of work, so check that shifts, attendance and overtime approvals in your payroll follow the same limits.
4. Fixed-term employees
Fixed-term employees must get the same wages and the same benefits as permanent staff doing similar work, including leave, medical and social security benefits. They become eligible for gratuity after one year of continuous service, instead of five. If you hire on fixed-term contracts, check your contract templates and provide for gratuity from the first year.
5. Appointment letters and health check-ups
- Appointment letters are mandatory for all workers, with details such as designation, wages and social security. Issue them to existing staff who never got one.
- Free annual health check-up for every worker above 40 years of age, provided by the employer.
6. Leave
Workers become eligible for annual leave with wages after 180 days of work in a year, compared with 240 days under the Factories Act. Review your leave policy and the leave balances in payroll so that leave with wages is not treated as loss of pay.
7. Social security coverage
- ESIC coverage is extended across India. It is voluntary for establishments with fewer than 10 employees and mandatory where even one employee works in a hazardous process. See the ESI calculation guide.
- PF: the wage ceiling is ₹25,000 a month from 17 September 2026. See the ₹25,000 PF ceiling guide and the PF ECR filing guide.
- Gig and platform workers are covered for the first time. Aggregators contribute 1–2% of annual turnover, capped at 5% of the amount paid or payable to these workers.
Keep the whole checklist in one payroll
AiroHR links attendance to payable days, sends overtime for approval before it reaches payroll, calculates PF, ESI and PT once your rules are set up in CTC Setup, and sends payslips on email and WhatsApp. Offer and appointment letters are generated on your letterhead from AiroHR's HR module.
Payroll software Request free trialLabour Codes payroll checklist
- Salary structures: run the 50% test for every employee and correct the wages used for PF and gratuity.
- Pay calendar: monthly salary by the 7th; dues of leavers within two working days.
- Deductions: only authorised deductions, never more than 50% of wages in a month.
- Overtime: paid at twice the normal rate or more, with the worker's consent where required.
- Fixed-term contracts: equal pay and benefits, gratuity after one year.
- Appointment letters: for every worker, including existing staff.
- Health check-ups: yearly, free, for workers above 40.
- Leave policy: annual leave eligibility after 180 days of work.
- PF ceiling: ₹25,000 from 17 September 2026; September 2026 is a split month.
- State rules: minimum wages, Professional Tax and many wage rules are set by your state. For Karnataka, see the Karnataka Professional Tax guide.
Official sources
- Government makes the four Labour Codes effective — Press Information Bureau, 21 November 2025
- Cabinet approves higher EPFO wage ceiling of ₹25,000 — Press Information Bureau, 16 September 2026
- Ministry of Labour & Employment (the Codes, rules and notifications)
This article is general guidance, not legal advice. The Codes and their central and state rules are being notified in stages, so confirm the current position for your state and industry with the official sources or your labour law adviser. Last reviewed: 17 October 2026.