Updated in December - 2025Â |Â Subscribe to watch greytHR how-to video
The Code on Wages, 2019 is one of the four major labour codes introduced by the Government of India to simplify, modernize, and standardize labour regulations across the country. It consolidates four existing laws:
Payment of Wages Act
Minimum Wages Act
Payment of Bonus Act
Equal Remuneration Act
By combining these into one unified Code, the government aims to:
Bring uniformity to wage definitions
Ensure timely and fair wage payments
Expand coverage to all categories of employees
Simplify compliance for employers
The Code becomes effective from 21 November 2025, giving organisations a clear timeline to adopt the required structural and process changes.
The Code fundamentally reshapes how employers define wages, structure salaries, compute statutory contributions, manage employment lifecycles, and maintain compliance.
It introduces foundational changes that directly impact:
Salary structures
Payroll processing
Statutory contributions
Minimum wage obligations
Full & Final settlement timelines
Gratuity eligibility
Overtime calculations
Together, these require both policy-level decisions and system-level configurations to stay compliant.
Under the new law, Basic Pay + Dearness Allowance (DA) + Retaining Allowance must form at least 50% of total remuneration.
Previously, organizations often kept Basic Pay at lower percentages and structured the rest as allowances. This helped manage PF/ESI contributions and Gratuity liability while optimizing employee take-home pay.
With the new rule:
Employers must restructure salary components
If allowances exceed 50%, the excess is added back to Wages
This leads to higher statutory obligations like PF and Gratuity
The Code introduces a “Floor Wage” that acts as a baseline for states. No state can set minimum wages below this amount.
Minimum wage compliance now applies to all employees, not just those in scheduled industries.
Organizations with diverse job profiles must re-evaluate wage alignment across roles and locations.
Overtime must now be calculated at twice the employee’s normal wage rate, and importantly, must use the new wage definition rather than the existing Basic Pay.
OT will become more expensive for employers
Policies and system formulas must be updated
Organisations must clarify OT eligibility across employee classes
One of the most operationally significant changes is the mandatory completion of Full and Final (FnF)Â settlement within 2 working days.
Current FnF cycles often span 15–45 days.
Asset return, department clearance, pending loan recoveries, and payroll closures all need acceleration.
Manual processes will not meet the deadline.
Automated resignation workflows
Department-wise clearance
Exit dashboard for HR visibility
Integrated FnF computation
Under the new rule, Fixed-Term Employees (FTEs) become eligible for Gratuity after 1 year of continuous service, instead of the earlier 5-year rule applicable to permanent employees.
Organisations employing FTEs must budget for earlier gratuity payouts.
HRMS must support classification-based Gratuity rules.
greytHR allows configuration for FTE-specific eligibility.
While the Wage Code focuses on wage definitions, salary structure, and payment timelines, it is part of a broader labour reform framework. The remaining three Codes—the Social Security Code, Industrial Relations Code, and Occupational Safety & Health Code—work alongside the Wage Code to redefine compliance expectations for employers.
The Social Security Code consolidates several benefit-related legislations, including PF, ESI, Maternity Benefit, and Gratuity Acts.
Unified compliance: Managing PF, ESI, Gratuity, and maternity benefits becomes more structured under one framework.
Broader workforce categories: Gig and platform workers now fall under social security protections.
Faster Gratuity Eligibility for Fixed-Term Employees: Fixed-Term Employees (FTEs) become eligible for Gratuity after completing 1 year of continuous service, instead of the earlier requirement of 5 years that applied to permanent employees.
The Industrial Relations Code focuses on maintaining stability, fairness, and transparency in employer–employee relations.
Reskilling Fund for retrenched employees
Mandatory 14-day notice for strikes and lockouts
Recognition of fixed-term employment as a formal category
HR teams need structured processes for contract management, especially around FTEs.
Workforce planning and risk management become more predictable.
Retrenchment processes now involve additional financial and compliance steps.
The Occupational Safety & Health Code modernizes workplace safety standards, welfare requirements, and work conditions across industries.
Single licence/registration/return across multiple compliance areas.
Free annual health check-ups for employees.
Night-shift permission for women with adequate safety measures.
Facilities and operations teams must ensure compliance with updated safety norms.
Policies for night-shift work and workplace welfare must be updated.
HR and Admin teams must collaborate on safety audits and compliance documentation.
As the labour codes introduce new compliance requirements, greytHR provides configuration-driven tools that help organisations adapt without relying on manual processes.Â
Lock past payrolls: Protect previous salary data from changes once restructuring begins, ensuring audit integrity.
Snapshot payroll data before updates: Maintain a clean reference point for comparisons, reconciliations, and audit trails.
Automatic 2-day FnF alerts: Send timely notifications to ensure exit processes move quickly enough to meet statutory deadlines.
Configurability for Basic = 50% rule: Adjust salary structures using flexible component definitions that match the organization’s policies.
Gratuity eligibility setup for FTEs: Configure 1-year eligibility rules for Fixed-Term Employees as per the new Code.
Overtime formula updates: Modify OT calculations to use the updated wage definition and 2Ă— rate.
These features help organizations maintain accuracy, avoid compliance errors, and stay prepared for inspections or audits.
It is important to understand that while greytHR supports all statutory requirements, the platform does not automatically enforce wage restructuring. This is because wage policies differ widely across organisations, and salary changes require financial and business decisions that only employers can make.
Basic percentage varies across organisations; some use 30%, others 40% or more.
Allowance structures differ based on role, location, or internal policies.
Cost management decisions (such as adjusting CTC vs. absorbing costs) must be taken by the employer.
Employee classifications (Permanent, FTE, Contract) have different eligibility rules.
OT policies vary significantly depending on industry and operational requirements.
State-level minimum wage rules differ, requiring employer-defined configurations.
greytHR therefore offers powerful configuration options, giving employers full control to implement wage rule changes in a manner best suited to their business needs.
The Code on Wages, 2019 is one of the four major labour codes introduced by the Government of India to simplify, modernise, and standardise labour regulations across the country. Â
It consolidates four labour laws—Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act, and Equal Remuneration Act—into a single, unified legislation. Its objective is to simplify wage definitions, ensure uniformity, and protect employee rights. Â
The government aims to:
Bring uniformity to wage definitions
Ensure timely and fair wage payments
Expand coverage to all categories of employees
Simplify compliance for employers
The Code becomes effective from 21 November 2025, giving organisations time to revise policies, salary structures, and payroll processes.
The Code significantly impacts how organisations:
Define wages
Structure salaries
Calculate statutory contributions
Manage minimum wage obligations
Process Full & Final settlements(FnF)
Determine Gratuity eligibility
Calculate Overtime (OT)
These changes require both policy updates and HRMS-level configuration changes.
Yes, the platform is designed with a flexible, configuration-driven architecture. All statutory changes can be implemented via settings based on organization needs. Â
The major changes include:Â
50% Rule for Wages – Basic Pay + DA Retaining Allowance must be ≥ 50% of total remuneration.
Full & Final Settlement in 2 Days – FnF must be paid within 2 working days from resignation/termination.
Universal Minimum Wages – All employees are now covered, irrespective of industry.
Gratuity for FTEs – Fixed-term employees completing 1 year become eligible.
Overtime at twice the wages – Applicable for all employees, calculated on the new wage definition. Â
Under the Code, Basic Pay + Dearness Allowance + Retaining Allowance must form at least 50% of total remuneration.
Earlier, organisations often kept Basic Pay low and allocated more to allowances to manage PF/ESI and Gratuity costs. Under the new rule:
Salary components must be restructured
Any excess allowance beyond 50% must be moved back to Basic
PF and Gratuity liabilities may increase
The Code introduces a Floor Wage applicable nationwide. States must set minimum wages at or above this level.
Minimum wage compliance now applies to all employees
Organisations must reassess wage levels across all roles and locations
Inconsistencies between roles or departments may need correction
OT must be paid at twice the employee’s normal wage rate, calculated using the new wage definition, not just Basic Pay.
greytHR provides OT formula configuration and policy settings.
Employers must complete FnF within 2 working days of resignation or termination.
Current FnF cycles typically take anywhere from 15 to 45 days, as they involve multiple steps such as asset handover, department clearances, pending loan recoveries, and final payroll processing.Â
greytHR helps organisations overcome these challenges by automating key parts of the FnF workflow. Resignation requests trigger automated processes, department-wise clearances are streamlined, and HR teams gain real-time visibility through an exit dashboard. The platform also integrates FnF calculations directly within payroll, ensuring faster and more accurate settlement.
FTEs are now eligible for Gratuity after 1 year of continuous service.
Note: For Regular employees, the earlier rule of 5 years remains unchanged.
Increased financial provisioning for FTEs
HRMS must differentiate between employee types
Employers need to configure FTE-specific Gratuity rules
The Social Security Code consolidates PF, ESI, Maternity Benefits, Gratuity, and other social welfare laws into one framework. It also extends coverage to gig and platform workers.
Compliance becomes more unified and structured
New workforce categories (gig, platform) come under formal protection
FTEs gain faster Gratuity eligibility under this unified approach
The IR Code promotes transparency, stability, and fair labour practices. It introduces:
A Reskilling Fund for retrenched employees
Mandatory 14-day notice for strikes and lockouts
Formal recognition of fixed-term employment
These changes influence workforce planning and HR policy updates.
It sets standards for workplace safety, employee welfare, and working conditions. Key provisions include:
Single licence/registration/return
Free annual health check-ups
Night-shift permission for women with safety measures
Together, the four labour codes reshape compliance expectations.
For example:
New wage definitions affect PF, ESI, and Gratuity (Social Security Code)
FTE recognition impacts Gratuity and contract terms (IR Code)
OT and working hours align with wage and safety requirements (OSH Code)
greytHR provides tools to:
Lock past payrolls
Take payroll snapshots before restructuring
Trigger FnF alerts
Configure Basic = 50%
Set FTE Gratuity eligibility
Update OT formulas
Salary and wage restructuring depends on business-specific decisions such as:
Basic percentage allocation
Allowance strategy
Cost absorption choices
Employee classifications
OT eligibility
State-level wage rules
Since these vary across organisations, greytHR provides flexible configuration options, not automatic changes.
Employers must define their wage structure, update contracts and policies, and configure their HRMS to align with the new statutory requirements. greytHR provides the tools, but decision-making rests with the organisation.
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