India's four labour codes came into force on 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. They consolidate a large body of older legislation, and two of the changes go directly at logic embedded in nearly every Indian payroll system.
The first is the wage definition. Basic salary must now constitute at least fifty per cent of total compensation. Exclusions such as house rent allowance, overtime and bonuses are capped at fifty per cent of remuneration, and anything exceeding that threshold counts as wages. For decades Indian salary structures were designed in the opposite direction — a modest basic with a large allowance component, precisely to limit the base on which statutory contributions are computed. Those structures now need rebuilding, and the software that computes them needs a wage definition that is a rule rather than a field.
The consequence flows through everything downstream. A higher basic means higher provident fund contributions and a higher gratuity base. Any system where the statutory base was a stored value rather than a derived one will produce wrong numbers, and any report or accrual built on the old base is now understating a liability. This is the sort of change that is straightforward in a well-structured payroll engine and a rewrite in one where the salary structure was modelled as a flat list of components.
The second significant change is gratuity for fixed-term employees, where eligibility drops from five years of service to one. Fixed-term workers now receive statutory benefits proportionate to tenure, including gratuity alongside ESI and provident fund. For any business using fixed-term contracts at scale — which includes a great deal of Indian IT services and staffing — that is a new and material accrual, and it needs tracking per employee from the first year rather than watched for a five-year anniversary.
The honest caveat, and it matters for anyone planning work: the detailed central and state rules required for full implementation were still pending at the time of writing. That means the direction is settled and some of the specifics are not, particularly where state-level variation applies. The sensible engineering response is to implement the rules as versioned, effective-dated data rather than as code — which is good practice anyway and is the only way to absorb a sequence of notifications without a release for each.
For a product team, the near-term work is a short list: make the wage definition a computed rule with the fifty per cent floor enforced, derive every statutory base from it rather than storing it, start gratuity accrual for fixed-term staff from month one, and build the rule table so that a state-specific variation is a data change. For a business rather than a vendor, the near-term work is different: get someone to look at your salary structures against the new definition before the next appraisal cycle bakes the old shape in for another year.
