Payroll Compliance

Payroll compliance looks large because it spans several statutes, but the obligations themselves come in five shapes and every one of them fits into one.

• Compute and withhold correctly. Provident fund and state insurance contributions, tax deducted at source on salary, professional tax and labour welfare fund where the state levies them.
• Deposit what was withheld, and the employer's own share, by the due date. The money is not the employer's from the moment it is withheld.
• File the return that reports it. Provident fund and state insurance returns, quarterly salary tax statements, and the returns required by state enactments.
• Issue what the employee is entitled to receive. A wage slip every period, the annual tax certificate, and settlement documents on exit.
• Maintain the prescribed registers and records, and retain them for the prescribed period.

Sorting an obligation into one of those five is usually enough to know what to do about it, and it makes the calendar rather than the statute the organising principle.

The four Labour Codes came into force on 21 November 2025, replacing twenty-nine central statutes. Three of them touch payroll directly.

The most consequential single change for payroll is the definition of wages, which now runs consistently across the Codes and adds back excluded components exceeding one-half of all remuneration. A structure built around a low basic has a higher statutory base than its payslip suggests, and that flows into provident fund, gratuity, bonus and settlement calculations together.

The practical work is smaller than the change sounds. Most obligations were carried forward in substance, so what needs updating first is citations in policies, handbooks and letters, and then the wage structures that the new definition reaches.

The count of twenty-nine is not a round number picked for effect: it is the sum of the four repeal provisions. Section 143 of the OSH Code takes thirteen enactments, section 164(1) of the Code on Social Security nine, section 69(1) of the Code on Wages four, and section 104 of the Industrial Relations Code three. One item in that total commenced separately and much earlier: the repeal covering the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 took effect on 3 May 2023, more than two years before the rest.

One saving is worth knowing before rebuilding any form or notification. Section 69(2) of the Code on Wages deems anything done under the enactments it repealed, including notifications, appointments, orders and directions, to be done under the corresponding provisions of the Code, so far as not contrary to it, until repealed under the Code or by Central Government notification. A notification issued under a repealed Act may therefore still be operative, which is a different thing from the Act being in force.

Central obligations are uniform across the country. State obligations are not, and a multi-state employer holds several sets.

• Professional tax is levied by some states and not others, with different slabs, different frequencies and different return formats.
• Labour welfare fund applies in some states, with contribution rates and periods that do not align with anything else.
• Shops and establishment registration, working hours, leave entitlements and holiday lists are state matters, so the same employer runs different leave rules in different offices.
• Minimum wage notifications are issued state by state, with skill categories and often zones inside the state, revised on their own timetables.
• Rules under the Codes are notified state by state, so the position differs depending on where the establishment sits.

The consequence is that a compliance calendar is not a list of dates, it is a matrix of dates by state. An organisation that opens an office in a new state acquires a set of obligations that nobody will send a reminder about.

Compliance failures cluster in a small number of places, and almost none of them involve a decision to do the wrong thing.

• Late deposit. The computation was right, the money moved a week late, and interest and damages follow. This is the most common failure by a distance.
• The gap between what was deposited and what was reported, so the challan and the return do not reconcile and the employee's credit is short.
• Wrong identifiers, which is the same failure wearing a different hat. A wrong permanent account number or member identifier sends the credit to nobody.
• A new state, a new category of worker or a new payment type that nobody mapped to an obligation.
• Contract labour treated as entirely the contractor's problem, when the principal employer carries its own obligations for the same people.
• Documents not issued: wage slips skipped, annual certificates late, settlement documents delayed past the point where the former employee starts escalating.
• Records that cannot be produced for an earlier period because of a migration.

The organising unit is the obligation, not the statute. For each one, four facts are enough: what is due, to whom, by when, and who owns it.

Three things then make it durable.

• Derive returns from the payroll run rather than preparing them separately. Most reconciliation failures come from two people building the same numbers from different sources.
• Reconcile deposit to return every period, not annually. The cost of finding a mismatch in the month is a correction; the cost of finding it in March is a correction statement and an employee whose credit was missing all year.
• Treat each new state, entity or worker category as a compliance event with its own review, because that is when obligations arrive unannounced.

None of this requires legal expertise on the payroll team. It requires the calendar to be complete, which is a records problem, and the deposits to be on time, which is a treasury one.