Four codes replaced twenty-nine laws. Most of the text does not touch a 30-person company. Five clauses do — and they all land in the payroll run.
India's four labour codes — the Code on Wages, the Industrial Relations Code, the Code on Social Security and the Occupational Safety, Health and Working Conditions Code — came into force on 21 November 2025. For a small business the practical changes are concentrated in payroll: a single definition of "wages" under which basic pay and dearness allowance must make up at least 50% of total remuneration, wages payable by the 7th of the following month, gratuity for fixed-term staff after one year instead of five, annual leave eligibility after 180 days instead of 240, and a mandatory written appointment letter for every employee. The rest of this guide is what to change, in what order, and what to leave alone. Facts checked 11 September 2026; state rules are still being notified, so confirm the position in your state before you act.
Until November 2025, an Indian employer worked under a patchwork: the Payment of Wages Act, the Minimum Wages Act, the Payment of Bonus Act, the Payment of Gratuity Act, the EPF and ESI Acts, the Factories Act, state Shops & Establishments Acts, and a dozen more. Each had its own definition of "wages", its own thresholds and its own returns. The four codes consolidate those into one framework with one definition of wages, one set of registers, and — in principle — one registration and one return. The old Acts are repealed as the corresponding code provisions take effect; where a state has not yet notified its rules, the old position generally continues in the interim, which is why the transition is uneven across the country.
For a business of 5–200 people, the headline is simpler than the legislation: the amount you call "wages" is now defined for you, and several costs are calculated on it.
The Code on Wages defines wages as basic pay, dearness allowance and retaining allowance, and then lists what is excluded — house rent allowance, conveyance, overtime, commission, bonus, employer PF contribution, gratuity and a few others. The rule that matters: if the excluded components add up to more than 50% of total remuneration, the excess is added back and counted as wages.
Consider a common small-business structure on a ₹40,000 monthly CTC: basic ₹12,000, HRA ₹16,000, special allowance ₹12,000. Exclusions total ₹28,000 — 70% of pay. Under the codes, the ₹8,000 above the 50% line is treated as wages, so "wages" becomes ₹20,000, not ₹12,000. Everything calculated on wages — PF (where applicable), gratuity, leave encashment, retrenchment compensation — is now calculated on ₹20,000.
You have two honest choices. Restructure so basic (plus DA) is at least 50% of gross, which makes the arithmetic transparent, or leave the structure alone and apply the add-back at calculation time, which is legal but invites mistakes every month. Most small businesses will be better served by the first. Whichever you choose, run the numbers on how CTC becomes in-hand pay for every employee before you announce anything — a higher PF deduction lowers take-home, and employees notice their net pay long before they read a circular.
The rule does not raise anyone's salary. It changes what fraction of the same salary is used as the base for statutory calculations.
The Code on Wages requires monthly wages to be paid before the 7th day of the following month for establishments with fewer than 1,000 employees. If you currently pay on the 10th because attendance takes a week to reconcile, the reconciliation is the problem, not the deadline. The attendance register has to be final within a day or two of month-end.
That is achievable only when attendance, leave and corrections are recorded as they happen rather than reconstructed afterwards. See how attendance reaches payroll without re-keying and how corrections should work — both are now compliance topics, not just efficiency ones.
Then put the recurring obligations on a calendar — the compliance calendar lists the monthly, quarterly and annual dates in one place.
| In force since | 21 November 2025 (central notification; state rules being notified progressively) |
|---|---|
| The four codes | Code on Wages 2019 · Industrial Relations Code 2020 · Code on Social Security 2020 · OSH & Working Conditions Code 2020 |
| Wages rule | Excluded allowances capped at 50% of total remuneration; excess is treated as wages |
| Wage payment deadline | Before the 7th of the following month (establishments under 1,000 employees) |
| Gratuity, fixed-term | Payable pro rata after one year of service (five years for regular employees) |
| Annual leave eligibility | After 180 days worked in a calendar year (previously 240) |
| Overtime | Twice the ordinary rate of wages; 48-hour week retained |
| Appointment letter | Mandatory for every employee |
Under the Code on Wages, components excluded from wages — such as HRA, conveyance, overtime, bonus and commission — cannot exceed 50% of an employee's total remuneration. Any amount above that limit is added back and treated as wages. Because PF, gratuity and leave encashment are calculated on wages, the rule effectively raises the statutory base for employees whose basic pay was set low.
Yes. The Code on Wages applies to all employees regardless of establishment size, so the wages definition, the payment deadline and the appointment-letter requirement apply to a 10-person firm. Thresholds still exist for specific schemes — PF generally at 20 or more employees, ESI at 10 or more in notified areas, gratuity at 10 or more — so check each scheme separately.
It can. If a salary is restructured so basic pay rises to 50% of gross, the employee's PF contribution rises with it, which lowers monthly net pay while increasing retirement savings and gratuity. Whether take-home falls depends on the starting structure and on whether the employer adjusts CTC. Model each employee before communicating the change.
For establishments with fewer than 1,000 employees, monthly wages must be paid before the 7th day of the following month. Larger establishments have until the 10th. Daily, weekly and fortnightly wage periods have their own shorter deadlines.
Yes. Under the Code on Social Security, a fixed-term employee is entitled to gratuity on a pro-rata basis after completing one year of continuous service, rather than the five years required of regular employees.
No. Compliance is about having correct attendance records, a salary structure that meets the wages definition, and payslips issued on time. Any system — including a careful spreadsheet — can do that. What software removes is the monthly re-keying between attendance and salary that causes most small-business payroll errors, and the deadline of the 7th makes that re-keying harder to afford.
Merik's default salary structure already sets basic pay at 50% of gross, with HRA and other allowance making up the rest — so a workspace created today starts on the right side of the wages rule rather than needing a restructure. Every salary revision is stored with its effective date, so the CTC history you need for a gratuity or arrears calculation is a record rather than a reconstruction.
The deadline of the 7th is where the connected model earns its keep: attendance, leave and work-from-home are recorded by employees as they happen, corrections go through an approval trail, and the month's payroll is computed on the server from the days already recorded. Payslips are generated and emailed individually or in bulk, and employees download their own. Merik does not file PF, ESI or TDS returns — those stay with your consultant or portal — but it produces the numbers they are filed from. See the payroll module or how setup works.
Every monthly, quarterly and annual statutory date, with the thresholds that apply.
PF, ESI, professional tax and TDS — what to get right each month.
15 ÷ 26 × last wages × years — plus rounding, the tax limit and the fixed-term rule.