India’s New Labour Codes Are in Force: Payroll Teams Must Act

India has officially activated all four national labour codes, a reform package that replaces 29 legacy labour laws with a single streamlined framework for wages, social security, industrial relations, and workplace safety. The Government announced their commencement on 21 November 2025, calling the reform a landmark shift in employment regulation. The ambition is enormous, but the practical rollout is assumed to be complex. And for payroll teams, the implications will be immediate once the implementing rules arrive.

What Has Been Announced

According to the Ministry of Labour's press release of 21 November 2025, the Code on Wages 2019, the Code on Social Security 2020, the Industrial Relations Code 2020, and the Occupational Safety, Health and Working Conditions Code 2020 are now legally in force. The reforms aim to modernise compliance, reduce fragmentation, and enhance protections for workers in India.

However, the Ministry confirmed that the detailed Central and State rules required for implementation are still pending. These rules will determine how employers calculate wages, structure benefits, register workers, and adhere to safety and industrial relations standards. Until these notifications are issued, organisations cannot fully implement or modify systems.

The Times of India reported that, while the codes signify a paradigm shift, the real challenge lies in coordinating 28 states and eight union territories, each responsible for issuing its own compliance frameworks.

What Changes for Payroll and HR

Payroll and HR leaders with a workforce in India need to understand the implications of these new labour codes, and the most significant ones include:

• The basic salary is fixed at 50% of the total compensation. According to the Code on Wages, employers must structure basic pay at a minimum of 50% of gross wages. Exclusions such as house rent allowance, overtime, and bonuses are still allowed but capped at 50% of total remuneration; any excess is considered wages.
• Gratuity eligibility for fixed-term employees. The Social Security Code reduces the minimum service period for fixed-term workers from five years to one year. This increases benefit obligations for employers and should be reflected in payroll cost planning, employment contracts, and payroll processing.
• Formal recognition of fixed-term employment. Fixed-term contracts now have specific compliance conditions, reducing ambiguity for employers that rely on project-based or seasonal hiring. They will be, like permanent employees, entitled to statutory benefits, including Employees' State Insurance (ESI), Employer Pension Fund (EPF), bonus, and gratuity, proportionate to their tenure.
• Preventive healthcare requirement. Employers must offer annual health checks for all workers aged 40 and over. This will add extra administrative and budget planning once regulations are announced.

The reforms promise greater clarity for workers, but the path from legislation to practical application remains uncertain for employers. Challenges include inconsistent state preparedness, different interpretations, and the risk that some jurisdictions will advance more quickly than others. Payroll and HR teams may face overlapping systems during the transition, especially when state notifications arrive months apart. Employers need not take action until the rules are published, as these regulations will dictate everything from compliance deadlines to calculation methods; however, diligent preparations for when these details are provided is a necessity.

What This Means for Global Payroll Leaders

For multinationals operating in or paying workers in India, these reforms require early preparation, even if immediate changes cannot be implemented:

• Review existing compensation structures to assess exposure to the 50% basic pay requirement.
• Identify fixed-term populations and estimate the cost of accelerated gratuity entitlement.
• Prepare to update internal systems once the unified wage definition takes effect, and engage with payroll (software and service) providers for a detailed impact assessment.
• Expect regional variations and possible delays depending on state-level preparedness, which also demands a clear understanding of which regions workers are assigned to.
• Enhance collaboration with payroll providers, external advisors, and compliance partners to monitor updates in real time.

The global payroll industry has seen significant regulatory acceleration over the past three years, with India’s reform efforts demonstrating how governments are modernising pay ecosystems. Payroll teams will require disciplined preparation to manage the rollout effectively.

Conclusion

India has implemented one of the most ambitious labour law reforms in decades. The codes are now officially in effect, but the practical impact will only become clear once Central and State regulations are published. Until then, global payroll teams should prepare, monitor, and plan for a transition that will transform payroll compliance for millions of workers in one of the world’s largest economies.

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Max van der Klis-Busink, MCIPP, RPP, is the Owner of Passion For Payroll and Vice President of Global Strategy on PayrollOrg’s Board of Directors.