Introduction

A major revamp of the India laws of employment will be the hallmark of the year 2025 when the new Labour Code India 2025 will be fully implemented. One of the biggest reforms emerging from the code on wages is a uniform definition of "wages" for all codes. The biggest-impact rule with the Labour Code India 2025 is that basic salary should be minimum 50% of total monthly salary or CTC (Cost to Company).

With the new regulations coming into place, there will be a first time seamless unified and employee-related regulations for businesses to follow. India's labour laws overhaul will, for the first time, promote transparency and process simplification. For HR and payroll departments, knowing the Labour Code India 2025 details is not just important but it's critical for maintaining compliance and for the avoidance of steep penalties.

Overview of Labour Codes

Labour Code India 2025 consolidated 29 different overlapping central labour regulations into 4 comprehensive codes. The goal is to modernize and simplify India’s regulatory framework for employers and employees. With the new Labour Code India 2025, the primary administrative aim will be to reduce administrative burdens and foster a more business-friendly atmosphere.

These are the new codes:

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

Wage Code Changes

One of the biggest reforms emerging from the code on wages is a uniform definition of "wages" for all codes. The biggest-impact rule with the Labour Code India 2025 is that basic salary should be minimum 50% of total monthly salary or CTC (Cost to Company).

This redefinition will have direct knock-on effect on the statutory contributions. Since basic pay is the measure used for calculating Provident Fund (PF) and gratuity, this change will likely increase both employer and employee contributions. While it may seem counter-intuitive to the employee as it will lower take-home pay to the employee, it will increase their long-term retirement savings substantially. The wage code will also ensure that salary payments are made by the 7th of every month.

Impact on Employers

With the new Labour Code India 2025, there are new obligations for employers. Possibly the first is to revise how employers will have to reconstruct the salary components to align with the new wage code definition. Aside from all this, companies have to get used to the fact that compliance increasingly is becoming digitized. The government is advocating for e-compliance and making it mandatory for firms to keep digital registers of attendance and wages and file through online portals such as Shram Suvidha.

Key impacts include:

Increased Social Security: The Code extends Social Security benefits to gig, platform workers and fixed-term workers creating new compliance duties for companies.
Flexible Work Options: Labour Code India 2025 will provide the legal framework for a 4-day workweek, permitting employees to work 12-hour shifts for 4 days to meet the 48-hour weekly ceiling, followed by a 3-day break thereafter.
Phased Implementation: The codes are being implemented in phases, starting with large enterprises (500+ employees), then medium sized companies (100-500 employees), and finally small businesses will have up to two years to comply which requires proactive HR compliance.

Payroll Compliance Checklist

To effectively comply with the Labour Code India 2025, HR and Payroll teams should prioritize and execute the following actions:

Analyze Salary Structures: Each employee's package needs to be audited and modified to ensure that the basic pay is at least 50 % of the total CTC.
Update PF & Gratuity Calculations: Payroll systems need to be updated to calculate the statutory contributions for the new higher basic wages which are permissible under the law.
Digitize Record-Keeping: Evolution from paper-based records to digital registers for attendance, wages, and other required documentation to ensure HR compliance.
Manage Gratuity for All: Account for gratuity payments needs to be managed for fixed-term employees who have completed at least one year of service.
Ensure Timely Filings: To avoid penalties under the new Labour Code India 2025, the deadlines for the submission of the PF, ESI and other contributions must be strictly followed.

How Lawfinity Supports Labour Law Compliance

With the new Labour Code India 2025, it's easy to get lost into its complexities. At Lawfinity, we are experts in guiding businesses understand and implement these critical changes. From full-scale compliance audits to redrafting employment contracts and HR policies, legal experts on our team deliver customized solutions. We keep your business in full compliance with evolving labour laws, so you can grow your business while we handle the regulatory complexities of Labour Code India 2025.