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Recent Changes in Indian Payroll Laws: What Employers Need to Know

Staying ahead of the latest amendments in Indian labor laws is crucial for employers to ensure compliance and manage their payroll effectively. In recent times, several changes have been made in various aspects of payroll management. This article will discuss the recent updates in minimum wages, overtime regulations, social security, gratuity, and leave policies, and the importance of compliance and reporting.

What are the new labor codes?

  • The Code on Wages, 2019
  • The Industrial Relations Code, 2020
  • The Code on Social Security, 2020
  • The Occupational Safety, Health, and Working Conditions Code, 2020

Payroll Changes under the New Labor Codes:
Payroll Changes under the New Codes

Minimum Wages:

One of the fundamental aspects of payroll is sticking to minimum wage laws. Recent changes in minimum wages across different states in India aim to address economic disparities and ensure fair compensation for labor.

The new Code on Wages, 2019 has broadened its applicability criteria to include a larger range of establishments and personnel. The 2019 Code on Wages expands the application of the Minimum Wages Act of 1948, which previously only applied to employees in scheduled employment, to all establishments and workers. The ₹24,000 threshold applicability restriction under the Payment of Wages Act 1936 has been removed. 

Salary structure:

According to the most recent labor legislation, workers must be paid a base salary that is at least 50% of their gross pay. Both employers and employees will contribute more to the Provident Fund as a result of this new rule. The retirement and gratuity amount will rise as a result of this adjustment, while take-home pay will decrease, especially for individuals working in the private sector.

Overtime Regulations:

As per the Factories Act, employees are entitled to twice their regular rate of wages if they exceed the daily restriction of 9 hours or the weekly maximum of 48 hours of work. For any work completed over eight hours per day or forty-eight hours per week, the overtime wage rate has been maintained in the new Codes. Furthermore, additional regulations about overtime labor have been added to protect the well-being of employees.

Changes in overtime rules impact both employers and employees. Recent amendments may include changes in the calculation of overtime pay, eligibility criteria, and maximum hours of work. 

Social Security:

One of the four codes suggested as part of India’s labor reforms is the Social Security Code, which was passed in September 2020. This code goes beyond simple consolidation, while other codes may be categorized as a collection of more complex acts. Gig workers, platform workers, and employees in the unorganized sector stand to gain greatly from the implementation of the law since it would provide them with wider coverage from social security benefits schemes. The Social Security Code includes PF, ESI, Maternity, gratuity, and other employee benefit schemes. 

Provident Fund:

Before the new social security code, individuals used to contribute 12% of their base pay into their PF. However, since these things are connected to your base pay, the new salary code is going to increase that contribution significantly. As a result, the figures associated with your basic salary will also change.


Under the new Codes, the five-year minimum mandatory gratuity threshold has been eliminated for some worker categories. Fixed-term employees are not subject to the same time constraints as regular and permanent employees, who must work for at least five years to be eligible for a gratuity. Rather, their gratuity will be paid out proportionately. However, during each work season, seasonal employees would get gratuity payments equal to their salaries for seven days. 

Leave Policies:

The annual leaves will not change, but as per the new rules, workers will now receive one day off for every 20 days of employment rather than the 45 days they currently receive. This is good news for the staff. In addition, instead of needing to work 240 days, new hires will now be eligible for leaves of absence after 180 days of employment, per the revised regulations.

Compliance and Reporting:

Compliance with labor laws is non-negotiable. Employers must invest in effective systems and processes to ensure accurate payroll calculations, timely tax deductions, and compliance with all statutory requirements. Regular audits and reporting are essential to identify and rectify any inconsistency promptly. Non-compliance can lead to severe penalties and damage an organization’s reputation.


Staying informed about recent changes in Indian payroll laws is imperative for employers to ensure legal compliance, maintain employee satisfaction, and foster a positive work environment. Regular updates to policies, effective communication with employees, and the implementation of reliable payroll management systems are essential components of successful payroll administration in light of changing labor regulations. By prioritizing compliance and staying proactive, employers can navigate the complexities of payroll management in an evolving legal landscape.

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