April 2026 is bringing the biggest shift to Indian payroll and compliance in decades. The Centre has finalised the rules for the four new Labour Codes, and they are expected to roll out next month.
If you run a business, your current CTC structures are likely outdated. Here is exactly what you need to prepare for:
- The 50% Basic Pay Rule: Allowances are now capped at 50% of total compensation. Your basic pay must make up the rest. This will directly increase your PF and gratuity liabilities.
- Faster Gratuity: Fixed-term contract employees are now eligible for gratuity after just one year of service, dropping the old five-year rule.
- Flexible Work Weeks: The 48-hour weekly limit stays, but you can now legally shift to a 4-day work week. Overtime must be paid at double the standard rate.
- Gig Worker Coverage: Social security is expanding. If you rely on gig, platform, or contract workers, you will need to contribute to a dedicated social security fund to cover their EPFO and ESIC benefits.
- Tax Relief on PF/ESI: A recent Budget 2026 update gives employers a breather. You can now claim tax deductions on delayed PF/ESI deposits, as long as they are paid before your Income Tax Return filing deadline.
The Practical Impact
Employers need to immediately recalculate employee compensation, update HR policies, and budget for higher compliance costs. For employees, this means a stronger retirement corpus, but a potential dip in monthly cash-in-hand.