The New Wage Code is LIVE: 5 Immediate Actions for Employers | Payline

The wait is over. As of November 21, 2025, the “wait and watch” period for India’s labour reforms officially ended. The 29 historic labour laws have been subsumed into the 4 New Labour Codes, fundamentally changing how India Inc. processes payroll.

For the last two years, we spoke about “readiness.” Today, we must speak about compliance.

The transition has been abrupt for many. If you are a Founder, CFO, or CHRO, the definitions of “Wages,” “Employee,” and “Workforce” have shifted overnight. The implications on your balance sheet—specifically regarding Gratuity, PF, and Leave Encashment—are real and immediate.

Here are the 5 critical actions your organization must take this week to stay compliant and avoid penalties.

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1. The “50% Rule”: Audit Your Salary Structures Immediately

This is the headline change. Under the new Code on Wages, Basic Pay (+ Dearness Allowance + Retention Allowance) must constitute at least 50% of the employee’s Cost to Company (CTC).

In the past, many companies structured packages with low Basic pay and high allowances (HRA, Special Allowance, Conveyance) to reduce PF liability. That loophole is now closed.

The Immediate Action:

• Run a Gap Analysis: Identify all employees whose Basic Pay is currently <50% of CTC.
• Restructure: You must increase the Basic Pay component.
• Communicate: This shift will likely increase the PF contribution for both employer and employee, potentially reducing the employee’s “in-hand” (take-home) salary. You need a clear communication strategy to explain that this increases their long-term savings (retirement corpus), even if monthly cash flow drops slightly.

2. The “2-Day” Exit Clock: Overhaul Your FnF Process

Perhaps the most operationally painful change for Finance teams is the new timeline for Full & Final (FnF) settlements. Under Section 17(2) of the Code on Wages, any employee who resigns or is terminated must be paid their dues within two working days.

The days of taking 45-60 days to process FnF are over.

The Immediate Action:

• Automate No-Dues: You cannot rely on manual email approvals from IT and Admin anymore. You need a workflow that triggers asset recovery alerts the moment a resignation is accepted.
• Liquidity Planning: Finance teams need to manage cash flow to accommodate immediate payouts, especially during months with higher attrition.

3. Review Gratuity Liability (It’s Not Just 5 Years Anymore)

The Social Security Code has expanded the safety net. While the general rule for gratuity remains 5 years of continuous service, Fixed Term Employees (FTEs) are now eligible for gratuity on a pro-rata basis, even if they serve less than 5 years (e.g., a 1-year contract).

The Immediate Action:

• Update Provisions: Your actuarial valuation for gratuity needs to be redone. If you rely heavily on contract staffing or fixed-term consultants, your gratuity liability just went up.
• Check Contracts: Ensure your employment contracts for fixed-term hires clearly outline these benefits to avoid legal disputes later.

4. Harmonize “Leave” Definitions

The codes have standardized the rules for leave encashment and eligibility. The threshold for leave eligibility has been reduced from 240 days of work to 180 days.

The Immediate Action:

• Policy Update: Update your HR Handbook. If an employee quits after 6 months (approx 180 days), they may now be entitled to leave encashment that they previously wouldn’t have qualified for.
• Payroll Configuration: Ensure your payroll software is updated to calculate encashment based on the new “Wages” definition (which may be higher due to the 50% rule) rather than the old Basic salary.

5. Digitise for the “Unified Portal”

The days of maintaining multiple physical registers for different acts are gone. The new regime focuses on a Single Return, Single License, and Single Registration via the Shram Suvidha Portal.

The Immediate Action:

• Digital Audit: If you are still maintaining physical registers for Minimum Wages, Bonus, or Overtime, digitise them immediately. The inspection scheme is now web-based and data-driven.
• Unified Filing: Ensure your payroll provider is ready to file the new unified annual returns. Inconsistent data across different state portals will now be easily flagged by the central system.

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The Payline View: Don’t Panic, Plan.

The New Wage Code is not designed to hurt businesses; it is designed to simplify complexities. However, the initial transition is undeniably heavy on administration and cost.

At Payline, we have upgraded our systems for this exact moment.

• Our payroll engines are already calibrated for the 50% Basic Rule.
• Our FnF Assist tool ensures 24-hour settlement processing.
• Our compliance team is already handling the Unified Portal registrations for over 200 clients.

Need a sanity check on your new structures? We are offering a “Wage Code Impact Assessment” for companies with 50+ employees. We will review your CTC structure and highlight red flags before the auditors do.