India's new labour codes just changed payroll for your Indian team — 8 things global companies must do now
If your company has employees, contractors, or a dedicated team in India, the way you pay them just changed significantly.
India consolidated 29 fragmented labour laws into four new codes — the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code. Most Indian states have notified their implementation rules. These codes are now active and enforceable.
For a US, UK, or European company running an Indian team, this creates a specific problem. Indian payroll has always worked differently from Western payroll. Salaries in India are structured with multiple components — not a single gross figure. Statutory contributions are calculated differently. Exit procedures follow different rules. If your Indian HR partner or EOR provider has not updated their practices, you may already be non-compliant.
This guide explains, in plain terms, what these changes mean for a global employer — and what to do about each one.
A quick primer on how Indian salaries work before you read further
Indian salaries are not structured as a single number, the way they are in the US or UK. They are broken into components. The most important ones to understand are:
CTC (Cost to Company): The total annual cost of employing someone. This is the headline number you agree on during hiring. It includes everything — base pay, allowances, statutory contributions, and benefits.
Basic pay: A fixed component of the salary, typically expressed as a monthly amount. It forms the basis for several statutory contributions. Historically, companies kept this low to reduce their statutory obligations.
HRA (House Rent Allowance): A standard component of Indian salary structures, partly tax-exempt for employees.
Special allowance: A flexible top-up component. Companies historically used this to fill the gap between basic pay and total CTC, keeping basic pay artificially low.
PF (Provident Fund): India's mandatory pension contribution scheme. Both the employer and the employee contribute 12% of the employee's basic pay each month. This is what makes basic pay a financially significant number — the higher the basic pay, the higher the PF contribution.
Gratuity: A mandatory lump-sum payment made to employees who have served a minimum period. It is calculated as a function of basic pay and length of service.
Understanding these terms is necessary to understand what the new labour codes change — and why those changes increase your costs.
1. Restructure your Indian employees' salaries to comply with the 50% basic pay rule
The Code on Wages sets out a clear mandate: basic pay must be at least 50% of an employee's total CTC.
Why does this matter for a global employer? Because most Indian salary structures were deliberately designed to keep basic pay low — sometimes as low as 20 to 30% of CTC — to minimise employer PF contributions and gratuity liabilities. The remaining 70 to 80% was paid as allowances.
Under the new rule, if an Indian employee earns ₹1,20,000 CTC per month, their basic pay must now be at least ₹60,000. The remaining ₹60,000 can be structured as allowances. But you can no longer use inflated allowances to keep basic pay below 50%.
If your Indian employees are currently on salary structures that predate this rule, those structures need to be revised. This is likely the case for most global companies whose Indian offer letters were written before 2025.
Action: Request a full salary structure review from your India HR team or EOR provider. Identify every employee whose basic pay sits below 50% of CTC. Restructure before the next payroll cycle.
2. Recalculate your employer's PF costs — your Indian team just got more expensive
Once you understand that PF contributions are 12% of basic pay, the implication of the 50% basic pay rule becomes immediate.
If an employee was previously structured with a basic pay of ₹ 30,000, the employer's PF was ₹3,600 per month. If the same employee's basic pay is now revised to ₹55,000 to comply with the new rule, the employer's PF becomes ₹6,600 per month. That is ₹3,000 more per employee per month — from a structural change alone, with no change in the employee's take-home pay.
For a US or UK company running a team of 30 Indian employees, this structural change could add ₹90,000 or more to monthly payroll costs. That figure will not appear as a line item in most payroll dashboards unless your provider has updated their calculations.
Action: Ask your payroll provider or EOR to run a revised cost model across your full India headcount using the updated basic pay structure. Factor this into your India budget for the current financial year.
3. Build a process for 2-day full and final settlements
When an employee leaves a company in India, they are owed a settlement that includes pending salary, any encashed leave, gratuity (if eligible), expense reimbursements, and any outstanding deductions. This is called Full and Final Settlement — or FnF.
Traditionally, Indian companies took 30 to 45 days to process FnF. The new Industrial Relations Code changes this completely: all employee dues must be paid within two working days of an employee's last working day.
For a global company paying Indian employees via international transfer, a two-working-day window is very tight. A SWIFT wire initiated on day one may not arrive in the employee's account until day four or five. That timeline does not meet the new legal standard.
Action: Map every component of your FnF process now — who calculates it, who approves it, and how it is disbursed. Test whether your current payment method can settle funds within two working days. If it cannot, you need a faster disbursement route before an employee hands in their notice.
For a global company paying Indian employees through an international transfer, two working days is a very tight window — especially if you don't know how SWIFT transfers to India actually work.
4. Update your understanding of gratuity eligibility for fixed-term hires
Gratuity is a lump-sum payment owed to employees who have served a minimum period with a company. Under the old law, the threshold was five continuous years of service. Many global companies used fixed-term contracts in India specifically to avoid this liability.
The Code on Social Security changes this. Fixed-term employees are now eligible for gratuity after 1 year of service, calculated pro rata.
For a global company that hires Indian contractors or fixed-term employees — common in the tech and services sectors — this is a new accruing liability starting at the end of year one. It needs to be modelled into your India employment costs from the first day of every fixed-term engagement.
Action: If you use fixed-term or contract structures in India, update your cost modelling to include gratuity accrual starting in year 1. Confirm that your EOR provider or Indian HR partner is tracking this correctly for each employee.
5. Audit your state-by-state compliance if your Indian team is distributed
India's new labour codes operate on a concurrent model. The central government sets the rules; each state frames its own implementation procedures, timelines, and variations.
This matters for global companies with distributed Indian teams. If your employees are spread across Bengaluru, Mumbai, Delhi, and Hyderabad, you are managing four distinct compliance profiles simultaneously. Professional tax slabs, filing deadlines, and registration requirements differ across Karnataka, Maharashtra, Delhi, and Telangana.
Many global companies manage their Indian payroll as a single entity without accounting for this state-level variation. That works as long as the rules are stable. When four new labour codes come into force simultaneously across 28 states and 8 union territories, the variation becomes material.
Action: Ask your India payroll provider for a state-by-state compliance report covering every location where you have employees. Confirm which states have fully notified their implementation rules and which are still in transition. Do not assume uniform compliance across all locations.
6. Verify that your payroll software or EOR is using updated calculation logic
Most payroll systems in active use today were configured before the new codes came into force. They may still apply pre-2025 salary component rules, outdated PF formulas, and the old five-year gratuity threshold — without triggering any visible error.
This is a particular risk for global companies using EOR providers or Indian payroll platforms that have not published explicit confirmation of their compliance updates. A system calculating PF on 30% basic pay instead of the newly mandated 50% will produce payslips that appear correct but are legally non-compliant.
Action: Contact your India payroll provider or EOR. Ask them directly: has your platform been updated for the 50% basic pay rule, the revised gratuity eligibility for fixed-term workers, and the two-day FnF settlement requirement? Request written confirmation. Run a test payroll before the next live cycle.
7. Review how you classify your India-based workers
The Code on Social Security formally extends India's social security framework to gig workers and platform workers for the first time. These workers are now entitled to life and disability cover, health and maternity benefits, and old-age protection.
More broadly, the new codes increase the legal risk of misclassifying a full-time worker as an independent contractor. If someone works fixed hours, takes direction from your team's managers, and uses your tools and systems, Indian labour authorities are likely to treat them as an employee — regardless of what the contract says.
For US and UK companies that engage Indian freelancers or contractors remotely, this creates an important compliance question. If the nature of the engagement looks like employment, you may have statutory obligations you are not currently meeting.
Action: Review every contractor or freelancer engagement in India. Assess whether the working arrangement is legally defensible as an independent contractor arrangement. Where it is not, consider proactively moving to an employment or EOR model. Reclassification on your own terms costs far less than a formal labour dispute.
8. Check whether your international payroll transfers can meet India's new settlement timelines
The new codes introduce two specific disbursement requirements that affect how global companies transfer money to Indian employees. Salaries must be paid to employees by the 7th of every month. Full and final settlements must be paid within two working days of an employee's exit.
Both rules make transfer speed a legal requirement, not just an operational preference.
Most global companies pay Indian employees through SWIFT bank wires. The average SWIFT transfer takes three to five business days to arrive after initiation. A salary wire sent on the 5th of the month may not land until the 9th or 10th — after the legally mandated deadline.
For FnF settlements, the gap is worse. If you initiate a SWIFT wire on the employee's final day, it will almost certainly arrive outside the two-working-day window.
Winvesta's global payroll product is built for this. Transfers from USD, EUR, GBP, and 30+ other currencies reach Indian bank accounts within 24 hours of initiation. The cost is a flat $3 plus 0.99% per transfer — with zero SWIFT fees, zero forex markup, and automatic e-FIRA certificates included at no extra charge. For a company paying 20 Indian employees at $3,000 per month, switching from bank wires to Winvesta saves between $4,800 and $6,000 per year in transfer fees alone.
More importantly, 24-hour settlement means you can meet both the monthly salary deadline and the two-day FnF requirement that bank wires routinely cannot.
You can see the full cost comparison at Winvesta's Payroll.
Most global companies pay Indian employees through SWIFT bank wires — but hidden charges your Indian bank adds to every international transfer mean the employee receives significantly less than you sent.
Where to start
If you are a global company managing an Indian team, start with two things.
First, get clarity on your current salary structures. Ask your India HR lead or EOR provider to confirm whether every employee's basic pay meets the 50% of CTC threshold. This single question surfaces the most common non-compliance issue and unlocks the downstream fixes — PF recalculation, gratuity modelling, and FnF process design.
Second, test your disbursement speed against the new timelines. Initiate a test payment through your current method and note when it lands. If it takes more than 24 hours after initiation, the two-day FnF rule is a live risk.
What non-compliance actually costs
Late TDS deposits attract 1.5% monthly interest plus a ₹200 per day penalty. Late EPF contributions trigger 12% annual interest plus damages of up to 25% of the outstanding amount. Delayed FNF settlements open the door to formal labour disputes under the Industrial Relations Code.
These are not theoretical risks for global companies. Indian labour authorities have stepped up enforcement since the new codes came into force. The cost of getting compliant now is a one-time investment. The cost of being caught non-compliant is a compounding problem.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute financial or legal advice. Winvesta makes no representations or warranties about the accuracy or suitability of the content and recommends consulting a professional before making any financial decisions.
Get paid globally. Keep more of it.
No FX markups. No GST. Funds in 1 day.
Table of Contents
If your company has employees, contractors, or a dedicated team in India, the way you pay them just changed significantly.
India consolidated 29 fragmented labour laws into four new codes — the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code. Most Indian states have notified their implementation rules. These codes are now active and enforceable.
For a US, UK, or European company running an Indian team, this creates a specific problem. Indian payroll has always worked differently from Western payroll. Salaries in India are structured with multiple components — not a single gross figure. Statutory contributions are calculated differently. Exit procedures follow different rules. If your Indian HR partner or EOR provider has not updated their practices, you may already be non-compliant.
This guide explains, in plain terms, what these changes mean for a global employer — and what to do about each one.
A quick primer on how Indian salaries work before you read further
Indian salaries are not structured as a single number, the way they are in the US or UK. They are broken into components. The most important ones to understand are:
CTC (Cost to Company): The total annual cost of employing someone. This is the headline number you agree on during hiring. It includes everything — base pay, allowances, statutory contributions, and benefits.
Basic pay: A fixed component of the salary, typically expressed as a monthly amount. It forms the basis for several statutory contributions. Historically, companies kept this low to reduce their statutory obligations.
HRA (House Rent Allowance): A standard component of Indian salary structures, partly tax-exempt for employees.
Special allowance: A flexible top-up component. Companies historically used this to fill the gap between basic pay and total CTC, keeping basic pay artificially low.
PF (Provident Fund): India's mandatory pension contribution scheme. Both the employer and the employee contribute 12% of the employee's basic pay each month. This is what makes basic pay a financially significant number — the higher the basic pay, the higher the PF contribution.
Gratuity: A mandatory lump-sum payment made to employees who have served a minimum period. It is calculated as a function of basic pay and length of service.
Understanding these terms is necessary to understand what the new labour codes change — and why those changes increase your costs.
1. Restructure your Indian employees' salaries to comply with the 50% basic pay rule
The Code on Wages sets out a clear mandate: basic pay must be at least 50% of an employee's total CTC.
Why does this matter for a global employer? Because most Indian salary structures were deliberately designed to keep basic pay low — sometimes as low as 20 to 30% of CTC — to minimise employer PF contributions and gratuity liabilities. The remaining 70 to 80% was paid as allowances.
Under the new rule, if an Indian employee earns ₹1,20,000 CTC per month, their basic pay must now be at least ₹60,000. The remaining ₹60,000 can be structured as allowances. But you can no longer use inflated allowances to keep basic pay below 50%.
If your Indian employees are currently on salary structures that predate this rule, those structures need to be revised. This is likely the case for most global companies whose Indian offer letters were written before 2025.
Action: Request a full salary structure review from your India HR team or EOR provider. Identify every employee whose basic pay sits below 50% of CTC. Restructure before the next payroll cycle.
2. Recalculate your employer's PF costs — your Indian team just got more expensive
Once you understand that PF contributions are 12% of basic pay, the implication of the 50% basic pay rule becomes immediate.
If an employee was previously structured with a basic pay of ₹ 30,000, the employer's PF was ₹3,600 per month. If the same employee's basic pay is now revised to ₹55,000 to comply with the new rule, the employer's PF becomes ₹6,600 per month. That is ₹3,000 more per employee per month — from a structural change alone, with no change in the employee's take-home pay.
For a US or UK company running a team of 30 Indian employees, this structural change could add ₹90,000 or more to monthly payroll costs. That figure will not appear as a line item in most payroll dashboards unless your provider has updated their calculations.
Action: Ask your payroll provider or EOR to run a revised cost model across your full India headcount using the updated basic pay structure. Factor this into your India budget for the current financial year.
3. Build a process for 2-day full and final settlements
When an employee leaves a company in India, they are owed a settlement that includes pending salary, any encashed leave, gratuity (if eligible), expense reimbursements, and any outstanding deductions. This is called Full and Final Settlement — or FnF.
Traditionally, Indian companies took 30 to 45 days to process FnF. The new Industrial Relations Code changes this completely: all employee dues must be paid within two working days of an employee's last working day.
For a global company paying Indian employees via international transfer, a two-working-day window is very tight. A SWIFT wire initiated on day one may not arrive in the employee's account until day four or five. That timeline does not meet the new legal standard.
Action: Map every component of your FnF process now — who calculates it, who approves it, and how it is disbursed. Test whether your current payment method can settle funds within two working days. If it cannot, you need a faster disbursement route before an employee hands in their notice.
For a global company paying Indian employees through an international transfer, two working days is a very tight window — especially if you don't know how SWIFT transfers to India actually work.
4. Update your understanding of gratuity eligibility for fixed-term hires
Gratuity is a lump-sum payment owed to employees who have served a minimum period with a company. Under the old law, the threshold was five continuous years of service. Many global companies used fixed-term contracts in India specifically to avoid this liability.
The Code on Social Security changes this. Fixed-term employees are now eligible for gratuity after 1 year of service, calculated pro rata.
For a global company that hires Indian contractors or fixed-term employees — common in the tech and services sectors — this is a new accruing liability starting at the end of year one. It needs to be modelled into your India employment costs from the first day of every fixed-term engagement.
Action: If you use fixed-term or contract structures in India, update your cost modelling to include gratuity accrual starting in year 1. Confirm that your EOR provider or Indian HR partner is tracking this correctly for each employee.
5. Audit your state-by-state compliance if your Indian team is distributed
India's new labour codes operate on a concurrent model. The central government sets the rules; each state frames its own implementation procedures, timelines, and variations.
This matters for global companies with distributed Indian teams. If your employees are spread across Bengaluru, Mumbai, Delhi, and Hyderabad, you are managing four distinct compliance profiles simultaneously. Professional tax slabs, filing deadlines, and registration requirements differ across Karnataka, Maharashtra, Delhi, and Telangana.
Many global companies manage their Indian payroll as a single entity without accounting for this state-level variation. That works as long as the rules are stable. When four new labour codes come into force simultaneously across 28 states and 8 union territories, the variation becomes material.
Action: Ask your India payroll provider for a state-by-state compliance report covering every location where you have employees. Confirm which states have fully notified their implementation rules and which are still in transition. Do not assume uniform compliance across all locations.
6. Verify that your payroll software or EOR is using updated calculation logic
Most payroll systems in active use today were configured before the new codes came into force. They may still apply pre-2025 salary component rules, outdated PF formulas, and the old five-year gratuity threshold — without triggering any visible error.
This is a particular risk for global companies using EOR providers or Indian payroll platforms that have not published explicit confirmation of their compliance updates. A system calculating PF on 30% basic pay instead of the newly mandated 50% will produce payslips that appear correct but are legally non-compliant.
Action: Contact your India payroll provider or EOR. Ask them directly: has your platform been updated for the 50% basic pay rule, the revised gratuity eligibility for fixed-term workers, and the two-day FnF settlement requirement? Request written confirmation. Run a test payroll before the next live cycle.
7. Review how you classify your India-based workers
The Code on Social Security formally extends India's social security framework to gig workers and platform workers for the first time. These workers are now entitled to life and disability cover, health and maternity benefits, and old-age protection.
More broadly, the new codes increase the legal risk of misclassifying a full-time worker as an independent contractor. If someone works fixed hours, takes direction from your team's managers, and uses your tools and systems, Indian labour authorities are likely to treat them as an employee — regardless of what the contract says.
For US and UK companies that engage Indian freelancers or contractors remotely, this creates an important compliance question. If the nature of the engagement looks like employment, you may have statutory obligations you are not currently meeting.
Action: Review every contractor or freelancer engagement in India. Assess whether the working arrangement is legally defensible as an independent contractor arrangement. Where it is not, consider proactively moving to an employment or EOR model. Reclassification on your own terms costs far less than a formal labour dispute.
8. Check whether your international payroll transfers can meet India's new settlement timelines
The new codes introduce two specific disbursement requirements that affect how global companies transfer money to Indian employees. Salaries must be paid to employees by the 7th of every month. Full and final settlements must be paid within two working days of an employee's exit.
Both rules make transfer speed a legal requirement, not just an operational preference.
Most global companies pay Indian employees through SWIFT bank wires. The average SWIFT transfer takes three to five business days to arrive after initiation. A salary wire sent on the 5th of the month may not land until the 9th or 10th — after the legally mandated deadline.
For FnF settlements, the gap is worse. If you initiate a SWIFT wire on the employee's final day, it will almost certainly arrive outside the two-working-day window.
Winvesta's global payroll product is built for this. Transfers from USD, EUR, GBP, and 30+ other currencies reach Indian bank accounts within 24 hours of initiation. The cost is a flat $3 plus 0.99% per transfer — with zero SWIFT fees, zero forex markup, and automatic e-FIRA certificates included at no extra charge. For a company paying 20 Indian employees at $3,000 per month, switching from bank wires to Winvesta saves between $4,800 and $6,000 per year in transfer fees alone.
More importantly, 24-hour settlement means you can meet both the monthly salary deadline and the two-day FnF requirement that bank wires routinely cannot.
You can see the full cost comparison at Winvesta's Payroll.
Most global companies pay Indian employees through SWIFT bank wires — but hidden charges your Indian bank adds to every international transfer mean the employee receives significantly less than you sent.
Where to start
If you are a global company managing an Indian team, start with two things.
First, get clarity on your current salary structures. Ask your India HR lead or EOR provider to confirm whether every employee's basic pay meets the 50% of CTC threshold. This single question surfaces the most common non-compliance issue and unlocks the downstream fixes — PF recalculation, gratuity modelling, and FnF process design.
Second, test your disbursement speed against the new timelines. Initiate a test payment through your current method and note when it lands. If it takes more than 24 hours after initiation, the two-day FnF rule is a live risk.
What non-compliance actually costs
Late TDS deposits attract 1.5% monthly interest plus a ₹200 per day penalty. Late EPF contributions trigger 12% annual interest plus damages of up to 25% of the outstanding amount. Delayed FNF settlements open the door to formal labour disputes under the Industrial Relations Code.
These are not theoretical risks for global companies. Indian labour authorities have stepped up enforcement since the new codes came into force. The cost of getting compliant now is a one-time investment. The cost of being caught non-compliant is a compounding problem.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute financial or legal advice. Winvesta makes no representations or warranties about the accuracy or suitability of the content and recommends consulting a professional before making any financial decisions.
Get paid globally. Keep more of it.
No FX markups. No GST. Funds in 1 day.
