Labour law compliance for services and IT companies is a crucial aspect of human resource management. It ensures that employees receive fair treatment, statutory benefits, and protection while aligning organizational practices with India’s legal framework. Following the introduction of the new Labour Codes, including the Code on Wages, Industrial Relations Code, Social Security Code, and Occupational Safety, Health, and Working Conditions (OSH) Code, 2026, service sector organizations must review and update policies to remain compliant.
Proper compliance not only safeguards employees’ rights but also reduces legal risks for employers, promotes transparency in salary structures, statutory deductions, leave policies, working hours, and social security benefits, and helps foster a motivated, healthy, and productive workforce.
This guide explores key factors of labour law compliance, providing practical insights for services, IT companies, and GCC (Global Capability Center) operations to stay aligned with the evolving legal landscape.
Understanding Salary Structure
Salary forms the foundation of labour law compliance. It includes all monetary and non-monetary benefits provided to employees for their services. Monetary components cover basic salary, allowances, bonuses, and commissions, while non-monetary facilities may include housing, medical benefits, interest-free loans, and cab facilities.
Components of Salary Structure
As per the new wage code, salary components are calculated as follows:
| Sl. No. | Components | Details | Calculation |
|---|---|---|---|
| 1 | Basic Pay | Minimum earnings employee receives; other components often derived as % of this | Minimum basic pay shall be 50% of CTC (Cost to company) |
| 2 | Allowances | HRA, Conveyance, Medical, etc. | HRA: 20–25% (non-metro), 30–35% (metro) of basic; other allowances = remaining after Basic + HRA |
| 3 | Other Payments | Incentives, bonuses, commissions | As per company policy and performance criteria |
Sample Calculation:
Let’s consider the total CTC of INR 1,00,000
| Salary Component | Annual (INR) | Remark |
|---|---|---|
| Basic Pay | 50,000 | 50% of CTC |
| House Rent Allowance (HRA) | 15,000 | 30% of Basic Pay (metro) |
| Conveyance Allowance, Insurance Benefit, Other Allowance | 35,000 | Balancing component |
| Total CTC | 1,00,000 | – |
Deductions from Employees Salary
Gross salary is the total remuneration before any deductions. Standard deductions include:
| S. No. | Components | Details |
|---|---|---|
| 1 | Professional Tax | State-level tax deducted by employer; deposited with the government |
| 2 | TDS (Tax Deducted at Source) | Deducted by employer if salary exceeds exemption limits |
| 3 | Statutory Fund Contributions | EPF, ESI contributions by employer and employee as per law |
Employee Provident Fund (EPF)
- Applicability: Establishments with 20+ employees or employees earning up to INR 15,000.
- Contribution: Employee – 12% of Basic + DA; Employer – 12% Basic + DA (3.67% to EPF, 8.33% to EPS).
Employee State Insurance (ESI)
- Applicability: 10+ employees earning up to INR 21,000.
- Contribution: Employee – 0.75% of gross; Employer – 3.25% of gross wages.
Professional Tax (PT)
PT is a state-level tax; rates vary by state:
| Sl. No. | Monthly Salary | Monthly PT Rate |
|---|---|---|
| 1 | Less than INR 15,000 | Nil |
| 2 | INR 15,001 – 20,000 | INR 150–200 |
| 3 | INR 20,000 and above | INR 200–400 |
Returns:
- Monthly returns by the 20th of the following month.
- Annual returns by 30th April
TDS (Tax Deduction at Source) on Salary
- Old Regime: NIL below INR 5,00,000; applicable above.
- New Regime: NIL below INR 12,00,000; applicable above.
Deposit: 7th day of next month
Return: Quarterly – 31st July, 31st Oct, 31st Jan, 31st May
Gratuity Fund Contribution
- Governed by the Payment of Gratuity Act, 1972
- Applicable: 10+ employees, minimum 5 years continuous service
- Companies must create yearly provisions for gratuity in accounts.
Shop & Establishment Act
Regulates working conditions for employees in offices, shops, restaurants, and warehouses. Key provisions include:
- Mandatory registration
- Working hours, overtime, weekly offs, and festival holidays.
- Maintenance of employee records
- Prohibition of child labour (under 14 years)
Reimbursement to Employees
Reimbursement covers expenses like travel, medical, telephone, internet, and fuel. Provided against valid bills and is typically non-taxable if conditions under the Income Tax Act are met.
Leave Policy
Leave is a period off from work or duty. Earned leave, also called paid leave, allows employees to take time off while still receiving their salary, even if they are not performing work during that period. Any unutilized earned leave can usually be carried forward to the next year and is paid out during the employee’s full and final settlement.
HR teams in a foreign subsidiary in India must design leave policies that align with statutory requirements, including earned leave, casual leave, sick leave, and maternity benefits. A company can also create flexible leave policies to suit its operational needs while remaining compliant with labour laws.
| Sl. No. | Type of Leave | Description | Leave Entitlement |
|---|---|---|---|
| 1 | Annual Earned / Paid | Paid leave for absence | 12–15 days/year |
| 2 | Casual Leave | For unforeseen situations | 7–10 days/year |
| 3 | Sick Leave | For illness | 7–12 days/year |
| 4 | Maternity Leave | Female employees | Up to 26 weeks |
Introduction of the New Labour Codes (2025)
Code on Wages, 2019
- Consolidates Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act, Equal Remuneration Act
- Introduces the national floor wage
Industrial Relations (IR) Code, 2020
- Replaces the Trade Unions Act, Industrial Employment (Standing Orders) Act, and Industrial Disputes Act.
- Modernizes union recognition and grievance processes
Social Security Code, 2020
- Consolidates EPF, ESI, Gratuity, Maternity, and other welfare legislations
- Extends coverage to gig workers, platform workers, and unorganised employees
OSH Code, 2020
- Consolidates 13 laws, including Factories Act and the Contract Labour Act
- Ensures safety, health, and standardized working conditions
Key Changes in New Labour Codes (2025)
| Feature | Old Labour Laws | New Labour Codes |
|---|---|---|
| Wage Structure | Basic low, allowances higher | Basic ≥ 50% of total remuneration |
| Minimum Wage | Only scheduled employment | Universal minimum wage |
| Working Hours | 8–9 hrs/day | 8–12 hrs/day, 48 hrs/week |
| Overtime | Varies | Mandatory 2x pay |
| Social Security | Only formal employees | Gig & unorganised workers included |
Compliance Considerations for GCCs and Foreign Subsidiaries
Service sector companies operating as GCCs or foreign subsidiaries in India must integrate labour law compliance into HR and operational strategies. Compliance ensures accurate salary structures, statutory deductions, leave policies, reimbursements, and working conditions. Regular audits, employee awareness, and timely updates help avoid penalties and disputes. GCC(global capability center)often handles multiple clients across regions, making structured compliance essential for operational efficiency and global standards alignment.
Conclusion
Adhering to labour law compliance for services and IT companies is critical for legal, ethical, and operational excellence. Organizations that rigorously align salary structures, statutory deductions, leave entitlements, reimbursements, and working conditions with the new Labour Codes benefit from a motivated workforce, reduced risks, and a strong organizational reputation.
Proactive compliance, regular audits, and updates ensure sustainable growth and workforce well-being while maintaining transparency and fairness across the company. Corporate legit helps businesses implement these compliance measures effectively, providing expert guidance for service sector and IT companies operating in India.
Frequently Asked Questions (FAQs)
1. What is labour law compliance for services and IT companies?
Labour law compliance ensures service and IT firms follow legal frameworks like salary structures, leave policies, statutory deductions, working hours, and social security benefits, protecting both employees and employers.
2. Which employees are covered under EPF and ESI in India?
EPF applies to establishments with 20+ employees or those earning up to INR 15,000/month. ESI covers 10+ employees earning up to INR 21,000/month. Both require employer and employee contributions.
3. How should leave policies be structured in a foreign subsidiary in India?
HR teams must design leave policies that comply with statutory requirements, including earned leave, casual leave, sick leave, and maternity benefits. Policies can also be flexible to suit operational needs.
4. What are the new working hour and overtime rules under the Labour Codes?
Normal working hours are capped at 8–12 hours/day and 48–50 hours/week. Overtime is paid at twice the ordinary rate and spread-over hours must not exceed 10–12 hours/day.
5. How do GCCs (global capability centers) ensure compliance for multiple operations?
GCCs handle multiple clients and regional offices; they integrate labour law compliance into HR and operational strategies, conduct regular audits, and maintain structured documentation to avoid legal risks.