Labour codes 2026: an employer’s payroll checklist
Four groups of actions, in the order most payroll teams need them. Tick them off, print it, and share it with your team.
Quick answer
Under the new labour codes, wages must be at least 50% of total pay, which raises the PF and gratuity base. Employers should recalculate wages for every employee, update salary structures and PF settings (including the ₹25,000 EPF ceiling from 17 September 2026), extend gratuity to fixed-term staff after one year, update exit processes, and run a parallel payroll before going live.
Wages and salary structure
- Work out “wages” for each employee: basic, dearness allowance and retaining allowance, plus any excluded pay that is more than half of total remuneration.
- List employees whose excluded pay (HRA, conveyance, special allowances, overtime and similar) is above 50% of total pay, and add the excess back to wages.
- Redesign salary structures where the basic is low, and plan how you will explain any change in take-home pay to employees.
- Update appointment letters and salary annexures where the structure changes.
PF, gratuity and other benefits
- Recalculate the PF base on the new wages, and apply the ₹25,000 EPF wage ceiling that applies from 17 September 2026.
- Enrol employees with PF wages between ₹15,001 and ₹25,000 who were not covered before.
- Re-estimate your gratuity provision on the higher wage base.
- Extend gratuity to fixed-term employees after one year of service.
- Check the bases for statutory bonus (the ₹21,000 eligibility and ₹7,000 calculation ceilings) and leave encashment.
Contracts, exits and records
- Review fixed-term and contract agreements against the codes.
- Update your final settlement process: the codes set a two working day rule for paying dues on exit.
- Check that payslips show wages and deductions clearly, with the pay period.
- Keep wage records, registers and returns in the form the central and state rules require.
Rules and systems
- Read the Central Rules notified on 8 May 2026, and check whether your state has notified its own.
- Update professional tax and labour welfare fund settings for each state you operate in.
- Change the wage definition and PF settings in your payroll software.
- Run a parallel payroll on last month’s data and compare net pay for every employee before you go live.
Reviewed October 2026. Related: India payroll compliance changes in 2026, EPF wage ceiling raised to ₹25,000, compliance due-date calendar.
Frequently asked questions
What is the 50% wage rule?
Under the Code on Wages, basic pay, dearness allowance and retaining allowance count as wages, and if the excluded components (such as HRA, conveyance and bonus) are more than half of total remuneration, the excess is added back to wages. In effect, wages are at least 50% of total pay.
Does this change my employees’ take-home pay?
It can. A higher wage base raises PF and gratuity, which can reduce take-home pay for people whose basic was low, even though CTC has not changed. Use the labour-code salary calculator to see the effect on any salary.
When did the labour codes come into force?
The four labour codes came into force on 21 November 2025. The Central Rules were notified on 8 May 2026, and states continue to issue their own.
Is this checklist legal advice?
No. It is a planning checklist based on published notifications, reviewed in October 2026. Rules are being clarified by central and state governments, so confirm details with a labour-law professional.
Want payroll that updates when the rules do?
Sleet applies wage definitions, PF ceilings and state rules in your payroll run, and lets you check a parallel payroll before you switch.
Sources
Written by Sleet, which sells payroll software. This is a planning checklist based on published notifications, not legal advice.