October 2026 HR Update: Labour Codes, PF Ceiling & Payroll Changes for Employers

October 2026 is an important month for HR and payroll teams across India.

Several major changes are now affecting the way businesses manage employees, salaries and statutory compliance. The four Labour Codes have moved into implementation, the PF wage ceiling has been increased from ₹15,000 to ₹25,000, and Karnataka has expanded the coverage of its Labour Welfare Fund.

For business owners and HR managers, these changes can affect much more than compliance paperwork.

They can influence:

• Employee salary structures
• PF contributions
• Take-home salary
• Gratuity calculations
• Payroll processing
• Employee joining and exit processes
• Appointment letters
• Contract labour
• Labour welfare compliance

Let's look at the major updates in simple terms.

1. India's Four Labour Codes: What HR Teams Need to Know

India previously had 29 central labour laws covering different areas of employment and worker benefits.

These have been consolidated into four Labour Codes:

1. Code on Wages, 2019
2. Industrial Relations Code, 2020
3. Code on Social Security, 2020
4. Occupational Safety, Health and Working Conditions Code, 2020

The four Codes were brought into force on 21 November 2025, followed by the Central Rules in May 2026.

However, employers also need to consider state-specific rules.

This is important because labour is a concurrent subject in India. A company operating in Karnataka may have additional requirements that differ from a company operating in another state.

What does this mean for employers?

HR teams should now review their existing systems instead of waiting for further changes.

Start by checking:

• Salary structures
• Payroll calculations
• Employee contracts
• Appointment letters
• Working-hour policies
• Gratuity calculations
• Exit procedures
• Statutory records

For companies operating across multiple states, the compliance review should be done location by location.

2. The 50% Wage Rule: Why Your Salary Structure Matters

Salary structures are another important area for employers to review.

The Labour Codes introduce a revised definition of wages and rules around excluded components and allowances.

In simple terms, employers need to ensure that salary is not structured by keeping basic pay artificially low while placing a large portion of remuneration under allowances that may be excluded from wages.

The commonly discussed 50% principle can have an impact on statutory calculations.

Why is this important?

The wage amount can affect calculations related to:

• Provident Fund
• Gratuity
• Bonus
• Leave-related payments
• Other statutory benefits

A simple example

Imagine an employee receives ₹60,000 per month.

Component	Monthly Amount
Basic Salary	₹20,000
HRA	₹15,000
Other Allowances	₹25,000
Total	₹60,000

Under the applicable wage provisions, HR may need to review whether the structure remains compliant.

A change in the wage structure can also affect the employee's take-home salary and the company's overall employment cost.

What should HR do?

Before changing salaries, conduct a payroll review.

• Current basic salary
• Allowances
• Wage components
• PF calculation
• Gratuity calculation
• Employer contribution
• Employee take-home salary

A payroll system that allows you to test salary structures can make this process much easier.

3. Fixed-Term Employees and Gratuity

Fixed-term employment is increasingly common in India's growing businesses.

Companies may hire employees for:

• Specific projects
• One-year contracts
• Two-year contracts
• Seasonal requirements
• Temporary business expansion

Under the new framework, eligible fixed-term employees can receive pro-rata gratuity after completing one year of service, subject to applicable provisions.

This means businesses should consider gratuity when calculating the cost of fixed-term employees.

Why does this matter?

Suppose a company hires an employee for a two-year project.

The company calculates salary and other benefits but does not consider potential gratuity liability.

At the end of the contract, the business could face an additional cost that was not included in the original workforce budget.

HR should review:

• Fixed-term contracts
• Employee eligibility
• Contract duration
• Gratuity calculations
• CTC
• Project workforce costs

4. Faster Full-and-Final Settlement

Employee exits are another area that requires attention.

The Labour Code framework provides for a faster settlement of wages after an employee leaves.

This means companies need an efficient process for completing full-and-final settlements.

An employee's F&F may include:

• Salary
• Leave encashment
• Incentives
• Reimbursements
• Notice-period recovery
• Loans or advances
• Asset recovery
• Statutory deductions
• Gratuity, where applicable

The traditional problem

If one department delays its approval, the entire settlement gets delayed.

A better process

This provides better visibility and reduces manual follow-ups.

5. Working Hours and Flexible Work Schedules

The Labour Codes continue to work around a 48-hour weekly limit, while allowing flexibility in how working hours may be distributed, subject to applicable rules and overtime requirements.

This can give businesses more flexibility in designing work schedules.

For example, some organisations may consider compressed working schedules where employees work longer hours on fewer days.

However, companies should review the applicable state rules and overtime requirements before implementing such a model.

HR should also check:

• Employment contracts
• Company policies
• Working-hour limits
• Overtime rules
• Employee requirements
• Industry-specific provisions

Flexibility should always be balanced with compliance.

6. Appointment Letters Need an Update

Employee documentation is another area that HR teams should review.

If your company has been using the same appointment letter template for several years, now is a good time to review it.

The appointment letter should clearly communicate important employment conditions, including:

• Designation
• Salary
• Employment type
• Working hours
• Place of work
• Probation period
• Leave
• Notice period
• Benefits
• Statutory deductions
• Other applicable employment conditions

For growing companies, standardised appointment letters can also make onboarding easier.

7. Contract Labour: What Businesses Should Review

Businesses that use contract workers should also review their workforce arrangements.

The threshold for certain contract labour provisions has moved from 20 to 50 workers under the new framework.

However, applicability can depend on the establishment and applicable rules.

Companies should maintain proper records relating to:

• Contractors
• Contract workers
• Contractor agreements
• Attendance
• Wages
• Statutory contributions
• Licences
• Compliance documents

Companies operating in multiple states should conduct separate compliance reviews for each location.

8. Gig and Platform Workers

India's workforce is also changing.

Businesses increasingly work with:

• Gig workers
• Freelancers
• Platform workers
• Delivery partners
• Independent contractors

The Social Security Code introduces a framework for gig and platform workers.

This means businesses need to understand how different categories of workers are treated under the applicable legal framework.

Simply calling someone a "freelancer" does not remove the need to understand the nature of the working relationship and applicable compliance requirements.

9. The Big Payroll Change: PF Ceiling Increased to ₹25,000

One of the biggest payroll developments of 2026 is the increase in the PF wage ceiling.

The previous ₹15,000 ceiling had remained unchanged since September 2014.

This means employees earning between ₹15,000 and ₹25,000 may be affected, depending on their eligibility under the applicable EPF provisions.

The government has estimated that the change could bring more than 51 lakh additional employees under PF coverage.

10. How Will the New PF Ceiling Affect Take-Home Salary?

For employees who become newly covered by PF, the employee contribution will be deducted from their salary.

Why should HR explain this?

Consider an employee who receives a salary of ₹20,000.

If PF deductions begin or increase, the employee may see a lower amount credited to their bank account.

Without proper communication, the employee may think there is an error in payroll.

HR should therefore communicate the reason for any new deduction before employees receive their payslip.

11. September 2026 Is an Important Payroll Month

The PF ceiling changed on 17 September 2026.

Therefore, September has two periods:

Payroll teams need to pay special attention to how contributions are calculated and reported for the month.

EPFO has issued guidance on handling the September contribution through the ECR process.

Where additional employee contribution could not be deducted from September salary, recovery may be handled in a subsequent payroll according to the applicable EPFO instructions.

Payroll teams should check:

• Employee eligibility
• PF wages
• Employee contribution
• Employer contribution
• UAN
• KYC
• ECR
• Salary deductions
• Any deferred recovery

12. PF Payment Deadline: 15 October 2026

September 2026 PF contributions are due within the prescribed timeline, including the 15 October 2026 payment deadline referenced for this update.

Payroll teams should avoid waiting until the last day.

This reduces the risk of missed deadlines and payroll errors.

13. PF and ESIC Are Different

The PF ceiling change should not be confused with ESIC.

PF and ESIC have separate eligibility rules.

The ESIC wage ceiling remains ₹21,000, subject to any subsequent government notification.

Therefore, HR teams should separately check:

An employee becoming eligible for PF does not automatically mean the employee becomes eligible for ESIC.

14. Karnataka Labour Welfare Fund: Important for Bengaluru Employers

For companies operating in Karnataka, the Labour Welfare Fund is another important area to review.

The Karnataka Labour Welfare Fund Amendment framework reduced the applicability threshold to 10 or more employees, effective from January 2026, subject to the applicable provisions.

This is particularly relevant for Bengaluru's:

• Startups
• IT companies
• SMEs
• Manufacturing businesses
• Service companies
• Growing businesses

A company that previously assumed it was outside the Labour Welfare Fund because it had fewer than 50 employees should now review its applicability.

Employers should check:

• Employee count
• Establishment type
• Registration
• Employee contribution
• Employer contribution
• Payment requirements
• Annual filing

The updated framework also allows specified digital payment methods, including net banking, NEFT, RTGS and UPI.

15. Why Growing Companies Need Better Payroll Management

Compliance becomes more complicated as your company grows.

Imagine a business growing from:

As employee numbers increase, HR has to manage more:

• Employee records
• Attendance
• Leave
• Salary calculations
• PF
• ESIC
• Documents
• Payroll
• Compliance
• Employee requests

Managing all of this through multiple Excel files can become time-consuming.

It can also increase the risk of:

• Calculation errors
• Missing employee information
• Duplicate records
• Delayed payroll
• Missed compliance activities

This is where HRMS and payroll automation can help.

16. How NGriffin Pay Can Support Modern HR Teams

With changing payroll and HR requirements, businesses need more than a basic salary calculator.

17. October 2026 HR & Payroll Checklist

Use this checklist to review your current HR process.

18. What Should HR Teams Do Now?

The best approach is to take these changes step by step.

Conclusion

The HR and payroll environment in India is changing rapidly.

The Labour Codes, revised wage framework, new PF ceiling, gratuity provisions, faster employee settlements and Karnataka Labour Welfare Fund changes all require employers to take a closer look at their existing processes.

For HR teams, compliance should not be treated as a yearly exercise.

It should be part of everyday HR and payroll management.

This is where technology can make a real difference.

With an integrated HRMS and payroll platform like NGriffin Pay, businesses can bring employee management, onboarding, attendance, payroll, documents and workforce processes into one organised system.

As your business grows, the goal is not just to process salaries.