India offers one of the world’s largest skilled talent pools, and its employment rules have changed more in the last year than in decades. The four Labour Codes came into force on 21 November 2025, the central rules followed on 8 May 2026, and a new Income-tax Act took effect on 1 April 2026. From 17 September 2026 the mandatory Provident Fund wage ceiling rose from ₹15,000 to ₹25,000 a month. Employers now need salary structures where wages are at least 50% of pay, written appointment letters for every employee, and exit processes that pay final dues within two working days.
Currency: Indian Rupee (₹ INR)
Language: English (business), Hindi (official)
Regulatory Authority: Ministry of Labour and Employment (MoLE), EPFO, ESIC and the Income Tax Department
Last updated: October 2026
Set by each state by skill level and zone, roughly ₹10,000–₹25,000 a month. Under the Labour Codes it now covers every employee. A national floor wage is provided for but not yet notified.
A written appointment letter is mandatory for every employee under the OSH Code. Fixed-term contracts are allowed in all sectors, with the same pay and benefits as permanent staff.
Not set by law. Typically 3–6 months, set by contract and extendable for senior roles.
About 5–10% on top of gross salary for most professional roles (PF on wages up to ₹25,000 a month, EDLI, admin charges and gratuity accrual). Up to about 18% for salaries up to ₹21,000 a month, which also carry ESI and statutory bonus.
1 day of annual leave for every 20 days worked, once an employee has worked 180 days in the year. Most state laws give 12–21 days of earned leave plus sick and casual leave.
Up to 8 hours a day and 48 hours a week, with one weekly rest day. Some states allow longer days within the 48-hour week.
PF 12% (on wages up to ₹25,000 a month from 17 Sep 2026), plus 0.5% EDLI and 0.5% admin. ESI 3.25% for employees earning up to ₹21,000 a month.
New regime by default: 0% up to ₹4 lakh, rising to 30% above ₹24 lakh. No tax up to ₹12 lakh after the rebate, plus a ₹75,000 standard deduction.
At least twice the ordinary wage rate, calculated on wages as defined under the Code on Wages. Overtime needs the worker's consent.
Notice is set by contract (30–90 days is common). Retrenchment pays 15 days' wages per year of service, plus 15 days' wages into the Worker Re-skilling Fund.
Wages due on exit must be paid within 2 working days of the last working day. Gratuity is due within 30 days.
15 days' wages per year of service, after 5 years for permanent staff and after 1 year (pro rata) for fixed-term staff. Tax-free up to ₹20 lakh.
2025–2026 updates
Every employee needs a written appointment letter covering role, pay, working hours, leave, probation, notice, confidentiality and IP assignment. Structure pay so that basic pay, DA and retaining allowance are at least 50% of total pay; otherwise the excess allowances count as wages for PF, gratuity and bonus. Classify people correctly as permanent, fixed-term or independent contractors, as the Codes use clearer definitions of employee and worker.
Register with EPFO, ESIC (where applicable), state Professional Tax and Labour Welfare Fund authorities, and obtain a TAN for tax deduction. Each month, deposit TDS by the 7th and file PF and ESI returns by the 15th. File quarterly TDS returns (Form 138) and issue annual tax certificates (Form 130, formerly Form 16). Payslips and registers can now be kept electronically.
Employees earn annual leave once they have worked 180 days in a calendar year, can carry forward up to 30 days and can encash unused leave. Maternity leave is 26 weeks for the first two children and 12 weeks from the third. Statutory bonus of 8.33–20% applies to employees earning up to ₹21,000 a month. Public holidays include three national holidays plus state festival holidays, usually 10–15 days in total.
Notice follows the contract. For workers covered by retrenchment rules, give 1 month’s notice or pay in lieu, pay 15 days’ wages per year of service, and contribute 15 days’ wages to the Worker Re-skilling Fund. Establishments with 300 or more workers need government permission for lay-offs, retrenchment or closure. Final wages must be paid within 2 working days of the last day, and gratuity within 30 days.
Set up a POSH Internal Committee once you have 10 or more employees and file its annual report. Follow state Shops and Establishments rules where state Code rules are pending. Prepare for the Digital Personal Data Protection Rules: employee data must be kept secure, and breach reporting duties apply from 13 May 2027.
Download the full India Payroll & Employment Guide 2026 (PDF)
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FAQ
Yes. An Employer of Record such as StratEdge Global becomes the legal employer and handles contracts, payroll, PF, ESI, tax deduction and Labour Code compliance, while you direct the day-to-day work.
For most professional salaries, about 5–10% of gross: 12% PF on wages up to ₹25,000 a month, EDLI and admin charges, and gratuity accrual. Employees earning up to ₹21,000 a month also attract ESI (3.25%) and statutory bonus, taking the total to about 15–18%.
Basic pay, DA and retaining allowance must be at least 50% of total pay. If allowances exceed 50%, the excess is treated as wages for PF, gratuity and bonus, so low-basic structures usually cost more and should be reviewed.
Wages due must be paid within 2 working days of the last working day, whether the employee resigned or was dismissed. Gratuity, where payable, is due within 30 days.
