AS | Ankit Sarawagi|Founder, CFOmatrix·August 2026·10 min read | Payroll & Labour Law |
Two things trip up almost every growing startup on the payroll front: paying below the state-notified minimum wages without realising it, and having no registers to show when a labour inspector or an acquirer asks.
This guide covers both. It explains how minimum wages are actually fixed in India, what the Code on Wages changes (including the national floor wage and the 50% wage rule), the deadline by which you must pay each month, and the exact registers and wage slips you are expected to keep. Start with the summary, then jump to the section you need.
- Who sets the rate
- Each state notifies minimum wages by scheduled employment, skill level and zone, revised with a Variable Dearness Allowance (VDA).
- National floor
- The Code on Wages adds a national floor wage set by the Centre. No state can go below it.
- Pay-by rule
- Monthly wages paid by the 7th (under 1,000 employees) or the 10th (1,000 or more).
- Registers to keep
- Register of employees, wage register, attendance-cum-muster roll, plus a wage slip each period. Preserve 5 years.
- Penalty
- Up to ₹50,000 for a first offence; up to ₹1,00,000 and imprisonment for a repeat within five years.
1 How minimum wages are set in India
Minimum wages in India are not one national number. They are state-notified, and the rate that applies to a given worker depends on three things:
- Scheduled employment: the industry or activity, such as shops and establishments, IT, construction or manufacturing. Each state lists the employments it covers.
- Skill level: unskilled, semi-skilled, skilled and highly skilled, each with its own rate.
- Zone or area: most states split into zones (metro, urban, rural), with higher wages in bigger cities.
On top of a fixed basic rate, states add a Variable Dearness Allowance (VDA) that is revised, in most states, twice a year (around April and October) to track inflation. So the same job can carry a different minimum in Bengaluru and in a smaller Karnataka town, and both change through the year.
Kaveri Labs runs a small manufacturing unit in Karnataka and an office team in Bengaluru. The two sites sit in different zones and, for some roles, different scheduled employments, so a “skilled” wage on the factory floor and a “skilled” wage in the office are not the same number. Kaveri cannot set one flat floor across both and assume it is compliant.
2 What the Code on Wages changes
The Code on Wages, 2019 is one of the four labour codes that came into force from 21 November 2025, with the operational rules rolling out across establishments in 2026. It consolidates the old Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act and Equal Remuneration Act into one law. Three changes matter most for founders.
Universal minimum wage and a national floor
Earlier, minimum-wage protection covered only workers in listed scheduled employments, roughly 40% of the workforce. The Code makes minimum wages apply to every employee. It also introduces a national floor wage fixed by the Central Government: states still set their own rates by employment and zone, but they cannot notify anything below the national floor.
A single definition of “wages”
The Code sets one definition of wages used across minimum wages, EPF, gratuity and bonus, ending the earlier patchwork where each law counted pay differently. This is where the 50% rule lives, covered in the next section.
Combined registers and returns
The Code and its rules push employers towards fewer, combined registers and simpler returns, which can be maintained electronically. This is meant to reduce the old stack of overlapping registers under separate acts.
3 The 50% wage rule and how basic pay is set
Under the Code’s definition of wages, the allowances that sit outside wages (HRA, conveyance, special allowances, and so on) cannot together exceed 50% of total remuneration. In plain terms: basic pay plus dearness allowance must be at least half the package. If excluded allowances cross 50%, the excess is added back into “wages” by law.
This matters because minimum wages, EPF, gratuity and bonus are all computed on that wage base. Many startups historically kept basic pay low (say 30% to 40%) and loaded the rest into allowances to cut EPF and gratuity cost. The 50% rule closes that.
Brewly pays a barista-team lead a monthly package of ₹40,000, structured as basic ₹14,000 (35%) plus ₹26,000 in allowances (65%). Under the 50% rule, allowances may not exceed ₹20,000. The excess ₹6,000 is treated as wages, so the wage base rises from ₹14,000 to ₹20,000.
Follow that ₹6,000 through the numbers. On EPF alone, the employer 12% contribution on the reworked base goes from ₹1,680 to ₹2,400 a month, roughly ₹720 more per employee, before gratuity and bonus effects. Across a 30-person team that is around ₹21,600 a month of new cost that did not exist on paper before.
4 When wages must be paid
The Code fixes clear outer limits for paying wages. Miss them and the delay itself is a violation, separate from any shortfall in amount.
| Wage period | Pay by |
|---|---|
| Monthly wages, establishment with fewer than 1,000 employees | By the 7th of the following month |
| Monthly wages, establishment with 1,000 or more employees | By the 10th of the following month |
| Daily wages | At the end of the shift |
| Weekly wages | On the last working day of the week |
| On removal, dismissal or resignation | Within two working days of the last day |
Wages must be paid in coin, currency, cheque or, most commonly now, by bank transfer to the employee’s account. Deductions are only allowed if they fall within the categories the Code permits.
5 The statutory registers and records you must keep
Paying correctly is only half the duty. You must also be able to show it. Under the Code on Wages rules, an employer maintains the following, in physical or electronic form.
| Register or record | What it captures |
|---|---|
| Register of employees | Each employee’s details: name, designation, department, date of joining, and status |
| Wage register | Days worked, wage rate, basic, dearness allowance, overtime, other payments, total earnings, deductions, fines, advances and net paid, with date and mode of payment |
| Attendance register-cum-muster roll | Daily attendance and hours worked, forming the base for wage and overtime calculation |
| Overtime record | Extra hours and overtime wages (commonly maintained within the wage register) |
| Leave record | Leave earned, taken and carried forward for each employee |
| Wage slip | Issued to every employee at or before payment, showing the wage break-up and deductions |
The Code’s rules combine several of the old separate registers into consolidated forms (a register of employees, a wage register covering overtime, advances, fines and deductions, and an attendance-cum-muster roll). Registers must generally be preserved for at least five years from the last entry.
When Kaveri Labs started a Series A round, the buyer’s team asked for twelve months of the wage register and attendance-cum-muster roll for the factory. Kaveri had been paying everyone correctly by bank transfer, but had kept no formal muster roll. It took three weeks to reconstruct the records from bank statements and biometric logs, and the gap became a noted item in the diligence report.
6 Common mistakes that cost founders
The pattern is almost always the same: the pay is fine, the paperwork is not, or a structuring choice quietly breaches a rule.
- Assuming one minimum for all sites. Different states, zones and scheduled employments carry different rates. A single flat floor rarely clears all of them.
- Ignoring the VDA revision. A rate that was compliant in April can fall short in October once the VDA is revised. Diarise the revisions.
- Low-basic structures. Keeping basic at 30% to 40% breaches the 50% rule and understates EPF, gratuity and bonus.
- No muster roll or wage slips. Paying by bank transfer is not a substitute for the register and the slip.
7 Your minimum-wages and registers checklist
- For each site, identify the state, scheduled employment, zone and skill levels, and pull the latest notified minimum wage plus current VDA.
- Confirm every employee’s total wages meet or beat the applicable minimum, and re-check after each VDA revision.
- Restructure salaries so basic plus DA is at least 50% of the package, without dropping below the minimum wage.
- Fix your monthly payroll cut-off at the 7th (or 10th if you have 1,000 or more employees) and run a few days earlier.
- Maintain the register of employees, the wage register, and the attendance-cum-muster roll, with overtime and leave captured.
- Issue a wage slip to every employee each period, and preserve all registers for at least five years.
Not sure which of these apply at your headcount and state?
Use our free Compliance Applicability Checker: enter your team size, state and set-up, and see exactly which labour, payroll and HR filings you owe now, and which switch on as you grow.
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Who sets minimum wages in India?
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Related guides & tools
EPF registration and filing: employer guide →
TDS on salary and Form 24Q →
Shops & Establishment registration in India →
Which compliances apply to your company? (free tool) →
AS | Founder, CFOmatrix | Finance Strategy & Compliance CFOmatrix helps Indian startups build finance, tax and compliance functions that stand up to investor due diligence, from process and controls to the filings and the numbers behind them. |
Disclaimer: This article is general information as of August 2026 and is not legal advice. Minimum wages, VDA rates, the labour codes and their rules can change and vary by state. Confirm your specific obligations with a qualified professional before acting.