Top 10 HR Compliance Mistakes Indian Companies Make in 2026

India's labour law landscape has changed significantly in 2026 with the rollout of the four new Labour Codes. Yet many companies — from startups to mid-sized organisations — are still making the same compliance mistakes that expose them to penalties, audits, and employee disputes. Here are the ten most common ones HR teams need to watch out for.

1. Ignoring the 50% Basic Wage Rule

The Code on Wages mandates that Basic Salary and Dearness Allowance together must equal at least 50% of total CTC. Many companies have not restructured their salary slips yet, leaving them exposed to retrospective PF and gratuity liability. This is the single most impactful compliance change of 2026 and the most widely ignored.

2. Not Updating Employment Contracts

Many organisations are still using employment contracts drafted years ago that reference old laws — the Industrial Disputes Act, the Payment of Wages Act, or the Factories Act — which have now been consolidated under the four new codes. Contracts that reference superseded legislation need to be updated.

3. Delayed Full and Final Settlement

Under the Code on Wages, full and final settlement must be completed within two working days of an employee's last day — whether they resigned, were terminated, or were retrenched. The common practice of stretching F&F to 30-45 days is now a compliance violation, not just poor practice.

4. Incorrect Gratuity Calculation for Fixed-Term Employees

Under the Social Security Code, fixed-term employees are now eligible for pro-rata gratuity regardless of how long they have served. Many payroll teams are still applying the old five-year rule to all employees — which is incorrect for contractual and project-based staff.

5. Missing Standing Orders Update

The Industrial Relations Code raised the Standing Orders threshold from 100 to 300 workers — but organisations already having certified Standing Orders must still maintain and update them. Many HR teams mistakenly assume the new threshold means they no longer need to comply at all.

6. No Documentation for Night Shift Women Employees

The OSH Code now allows women to work night shifts across all industries — but only if the employer has documented safety measures, transport arrangements, and written consent. Companies that have added women to night shifts without this documentation are non-compliant even if the intent was good.

7. Treating Gig Workers as Outside the System

The Social Security Code formally brings gig and platform workers into the social security framework. Companies that use significant numbers of gig workers need to monitor their state government's notifications on gig worker contributions — ignoring this is no longer a safe option.

8. Not Maintaining a Compliant Leave Policy

Many organisations have leave policies that were never formally documented or were last updated before the new codes. A written, board-approved leave policy that aligns with the applicable state rules under the OSH Code is now a baseline requirement, not a nice-to-have.

9. PF Deductions on Wrong Salary Base

With the 50% Basic Wage rule now in force, PF contributions must be calculated on the revised Basic Salary. Many payroll systems have not been updated to reflect the restructured salary breakups — resulting in PF being deducted on the old, lower Basic, which creates a liability gap.

10. No Awareness Training for Managers

Compliance isn't just an HR function — line managers make decisions every day that carry legal implications: attendance, disciplinary action, termination, leave approvals. Companies that have not trained their managers on the basics of the new Labour Codes are creating silent compliance risks across every department.

What Should HR Do Now?

Start with a compliance audit — go through your salary structures, employment contracts, leave policies, and F&F processes against the new codes. Prioritise the 50% wage restructuring and F&F timelines as the most immediately actionable items. For a ready-to-use compliance checklist and HR policy templates, visit our Stores and Services page.

❓ Frequently Asked Questions

Q: Do all four Labour Codes apply to every company in India?
A: The codes apply based on state notifications and establishment size thresholds. However, the Code on Wages applies universally regardless of size. Check your specific state's notification for the other three codes.

Q: What is the penalty for non-compliance with the Code on Wages?
A: Penalties