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IN THIS ARTICLE

• Why 2026 Changes Everything
• One Code, Four Laws: What Was Consolidated
• The Wage Definition That Breaks Most CTCs
• The Floor Wage: A National Baseline
• Payment Timelines: The Clock Is Stricter Now
• Equal Remuneration: Now Enforceable
• Who It Applies To: Broader Than You Think
• Your Compliance Checklist
• The Bigger Picture: Four Codes, One Direction
• Official Sources & Further Reading
• Related PNAC Insights
• Frequently Asked Questions

Why 2026 Changes Everything for Founders

The Code on Wages, 2019, received Presidential assent over five years ago. For much of that time, it existed in a state of regulatory limbo; passed in law, but pending in practice as states worked through their rule-notification processes. That window of ambiguity has effectively closed.

The Central Government operationalised all four labour codes from 21st November 2025 (Ministry of Labour & Employment Gazette Notification, 2025). With state-level enforcement mechanisms now active and digitised labour inspections underway, 2026 marks the year this legislation moves from legal theory to operational reality for every employer in India.

For founders — especially those building fast-growing startups, hiring distributed teams, or managing payroll informally — the Code demands attention it has not received. This is PNAC's definitive guide to what it contains, what it changes, and what your organisation must do now.

“The question is no longer whether the Code on Wages applies to your startup. It does, from Day 1, regardless of size. The question is whether your payroll, contracts, and compensation structures are ready for scrutiny.”

One Code, Four Laws: What Was Consolidated

Before the Code, wage compliance in India was governed by four central legislations, each with different definitions, applicability criteria, and enforcement mechanisms:

• The Payment of Wages Act, 1936
• The Minimum Wages Act, 1948
• The Payment of Bonus Act, 1965
• The Equal Remuneration Act, 1976

The Code on Wages consolidates all four into a single, unified framework: one definition of wages, one compliance architecture, and one set of enforcement powers. The Bare Act is publicly available via the Ministry of Labour & Employment (labour.gov.in) and the India Code digital repository (indiacode.nic.in).

The simplification is real. But it has come at the cost of several compensation-structuring advantages that HR and finance teams previously relied upon most significantly, the freedom to distribute salary across high-allowance, low-basic structures without statutory consequence.

The Wage Definition That Breaks Most Startup CTCs

The single most consequential change in the Code on Wages, and the one most likely to trigger immediate restructuring costs, is the redefinition of the term “wages.”

Under Section 2(y) of the Code, wages include all remuneration: basic pay, dearness allowance, and retaining allowance. Components such as HRA, conveyance, special allowances, and employer PF contributions are excluded, but only up to a ceiling: these excluded components cannot collectively exceed 50% of total remuneration.

The 50/50 Wage Rule — India’s New Payroll Standard

If the sum of all excluded salary components for any employee exceeds 50% of their gross CTC, the excess is pulled back into the statutory definition of wages. This increases the base for Provident Fund contributions, annual bonus calculations, and gratuity entitlements.

For startups that structured compensation with a low basic and high allowances, a practice historically used to reduce statutory outflows, this rule materially raises the cost of every such salary structure.

If an employee’s basic pay sits at 20% of CTC and the remainder is distributed across allowances, that structure is non-compliant. Organisations must restructure salary components, accept the higher statutory cost base, or both.

PNAC recommends auditing every salary band against the 50/50 rule before the next appraisal cycle is run under the current structure.

The Floor Wage: A National Baseline for Minimum Wages in India

One of the most structurally significant changes introduced by the Code on Wages is the concept of a Floor Wage. Under Section 9 of the Code, the Central Government is empowered to set a national minimum wage below which no state may fix its own minimum wage, a first in Indian labour law history.

This eliminates the wage arbitrage that many businesses, particularly those with distributed operations, contract labour, or Tier-3 city hiring, previously leveraged by operating in lower-minimum-wage states. The Floor Wage is determined based on the minimum living standards of a worker, with geographic cost-of-living variation taken into account.

States retain the power to set minimum wages above the floor, but never below it. For businesses that factored lower state-level minimums into workforce cost models, this is a permanent recalibration with no grandfathering

“The Floor Wage doesn’t just raise a number; it eliminates a strategy. Founders who built multi-location cost advantages on the back of minimum wage differentials must revisit those assumptions entirely.”

Payroll Compliance India: Stricter Payment Timelines Under the Code

Section 17 of the Code on Wages codifies payment timelines with a precision and enforceability that previous legislation did not uniformly achieve. For founders who have ever delayed payroll during cash-constrained growth phases, these requirements are non-negotiable statutory obligations, not policy guidelines.

Under the Code, monthly-salaried employees must receive wages by the 7th of the following month; weekly-rated workers must be paid weekly; and daily-rated workers must be paid daily or at the end of each work cycle. These deadlines are absolute.

Late payment is not a technical irregularity. It is a violation under the Code, carrying monetary penalties and, in certain cases, prosecution of the employer and the officers responsible for payroll. For startups operating on informal payroll practices: spreadsheets, ad hoc disbursements, or founder-discretion timelines, this is the compliance requirement most likely to be triggered first.

Equal Remuneration: Now Enforceable, Not Just Aspirational

The Code absorbs and strengthens the Equal Remuneration Act, 1976. Section 3 of the Code mandates equal pay for equal work without discrimination on the basis of gender. The principle was always part of Indian law. What has changed under the Code is the enforcement architecture around it.

For startups where compensation was historically set through ad hoc negotiation offer by offer, hire by hire, gender-correlated pay disparities are a discoverable risk. An audit that surfaces differential pay between male and female employees in equivalent roles can now trigger formal proceedings under the Code, not just reputational exposure.

This is a signal to founders to build structured compensation frameworks, defined salary bands, transparent grading, and documented rationale for any legitimate variation; rather than leaving remuneration to the discretion of individual hiring conversations.

Who Does the Code on Wages Apply To? Every Employer in India

This is where many founders are genuinely surprised: the Code on Wages applies to all establishments and all employees, regardless of the size of the organisation. There is no minimum employee count, no turnover threshold, and no startup exemption.

Startups Are Not Exempt — Labour Code Compliance in India Applies from Day One

Unlike several predecessor laws that included applicability thresholds, the Code on Wages has no minimum employee count. A two-person founding team with a single hire is an employer under the Code. The obligations of wage definition compliance, payment timelines, minimum wage adherence, and equal remuneration apply from the first employment relationship, on the first day of business.

Founders who have been advised that compliance obligations “kick in” at a certain headcount must revisit that advice specifically in the context of the Code on Wages. No such threshold exists here.

Your Compliance Checklist: Code on Wages 2026

Based on PNAC’s advisory work with founders and HR leaders navigating the new labour codes, the following actions are foundational to compliance with the Code on Wages in 2026:

• Salary Audit (50/50 Rule). Review every employee’s CTC. If excluded components exceed 50% of gross remuneration, restructure the salary architecture before the next appraisal cycle to avoid understated statutory bases.
• Payroll Systems. Manual payroll processes cannot reliably meet the Code’s payment timeline requirements. Invest in compliant payroll software that enforces the 7th-day deadline and generates prescribed wage registers.
• Employment Contracts. Legacy offer letter templates that reference wage components inconsistently with the Code’s Section 2(y) definition create both compliance gaps and enforceability risks in disputes.
• Minimum Wage Monitoring. Map state-specific minimum wages quarterly. With the Floor Wage as a national baseline, states set their own wages above it. Your HR operations need current, state-level data, not annual updates.
• Gender Pay Equity Audit. Before the next appraisal cycle, audit compensation bands across genders in equivalent roles. Document rationale for any legitimate variation and correct unexplained disparities.
• Bonus Compliance Review. Payment of Bonus Act provisions are absorbed into the Code. Audit eligibility criteria, computation base, and payment timelines for all statutory bonus obligations.
• Wage Registers. The Code requires wage records in prescribed formats under Section 8. Digitised labour inspections can trigger a records request at any time. Ensure registers are current and accessible.

The Bigger Picture: Four Labour Codes, One Direction

The Code on Wages is the first of four interconnected labour codes that together represent the most comprehensive restructuring of Indian employment law in decades. The others — the Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions Code, 2020- bring their own obligations, restructured thresholds, and enforcement mechanisms.

The Code on Social Security extends coverage to gig workers and platform economy workers for the first time. The Industrial Relations Code raises the threshold for prior government approval of retrenchment from 100 to 300 workers, offering scaling companies greater workforce flexibility. It also formally recognises work-from-home arrangements in service sector standing orders.

Taken together, these codes signal an unambiguous regulatory direction: comprehensive coverage, unified enforcement, and reduced tolerance for the compliance informality that characterised India’s pre-code labour regime.

Founders who build compliance infrastructure for the Code on Wages now are not just solving a point-in-time problem. They are building the institutional muscle that will absorb the full implementation of the remaining three codes as states progressively notify their rules.

Official Sources & Further Reading

All factual claims in this article are grounded in the following primary legislative and regulatory sources. Founders and HR leaders are encouraged to consult these directly alongside qualified legal counsel:

• Code on Wages, 2019 — Full text: indiacode.nic.in/handle/123456789/13442
• Ministry of Labour & Employment — Wage-related notifications and state minimum wages: labour.gov.in
• Industrial Relations Code, 2020 — indiacode.nic.in
• Code on Social Security, 2020 — indiacode.nic.in
• Occupational Safety, Health and Working Conditions Code, 2020 — labour.gov.in
• EPFO (Employees’ Provident Fund Organisation) — PF computation guidance: epfindia.gov.in
• National Career Service Portal (Ministry of Labour) — ncs.gov.in

IS YOUR ORGANISATION READY FOR THE NEW LABOUR CODES?

PNAC’s HR advisory team works with founders, HR leaders, and scaling businesses to build compliance infrastructure that lasts, not just audit patches.

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