Payroll touches four different compliance regimes at once — PF, ESI, Professional Tax, and TDS — and getting any one wrong creates a downstream problem for the employee's Form 16 or your own inspection exposure. We run monthly payroll for Coimbatore employers, from salary structuring through statutory deduction, payslip generation, and remittance, keeping every component aligned to the latest labour code and tax rules.
The 50% wage rule and what it actually changes
The four Labour Codes — Wages, Industrial Relations, Social Security, and Occupational Safety, Health & Working Conditions — were notified effective 21 November 2025, consolidating 29 earlier central labour laws. The single change with the broadest payroll impact is the uniform definition of “wages”: Basic pay plus Dearness Allowance must now constitute at least 50% of an employee’s total CTC. Where a salary structure has historically loaded a large share of CTC into allowances specifically to keep the PF and gratuity contribution base low, that structure no longer holds — any excess allowance above the 50% threshold gets added back into “wages” for the purpose of computing PF, gratuity, and other statutory benefits. This genuinely raises the contribution base (and therefore the employer’s statutory cost) for many Coimbatore employers who haven’t yet restructured, which is why salary structure review has become urgent rather than optional over the past several months.
Gratuity: the other major change fixed-term employers need to know
Under the Payment of Gratuity Act as it stood before the codes, gratuity eligibility required five years of continuous service — full stop. Under the Code on Social Security, fixed-term employees now become eligible for gratuity on a pro-rata basis after just one year of continuous service, while permanent employees remain on the original five-year threshold. This is a substantial shift for any Coimbatore employer using fixed-term contracts for seasonal production, project-based IT engagements, or contract manufacturing support — gratuity liability now needs to be budgeted and, for companies preparing formal financial statements, actuarially recognised for fixed-term staff far earlier than employers have historically planned for.
What’s included
- Monthly salary computation and payslip generation
- PF, ESI, and Professional Tax deduction and employer contribution calculation
- TDS on salary computed per employee's declared investments/regime choice
- Salary structuring for tax efficiency (Basic, HRA, allowances) under the New Labour Codes
- Full and final settlement processing for exiting employees
- Statutory remittance (PF/ESI challans) within due dates
- Annual Form 16 and investment declaration reconciliation
Our process
- Salary structure design — We design or review your CTC structure — Basic, DA, HRA, and allowances — balancing the 50% wage-rule requirement and statutory PF/ESI wage-ceiling implications with tax efficiency for employees.
- Monthly input collection — Attendance, leave, overtime, and any variable pay inputs are collected each month before processing.
- Payroll computation — Gross-to-net salary is computed with statutory deductions applied correctly per employee, based on wage ceilings and declared tax regime.
- Payslip and register generation — Payslips are generated and salary registers maintained in the format required for labour inspections.
- Remittance and filing — PF, ESI, and Professional Tax are remitted within due dates, and corresponding monthly/quarterly returns filed.
PF and ESI contribution basics
Provident Fund contributions are 12% of PF wages from the employee, matched by 12% from the employer (split between EPF and EPS components on the employer side, subject to the statutory wage ceiling framework), mandatory once an establishment employs 20 or more persons, with voluntary registration available below that. ESI applies to employees earning up to ₹21,000 gross per month (₹25,000 for persons with disability), with contribution at 0.75% of wages from the employee and 3.25% from the employer, covering medical and cash benefits. Both schemes interact directly with the new 50% wage-rule change above — a higher wages base under the new definition can pull employees closer to or across the ESI ceiling in ways that weren’t previously the case, which is worth checking per employee rather than assuming last year’s coverage status still holds.
Common payroll mistakes we see in Coimbatore businesses
The most consequential issue right now is simply not having restructured salary components for the 50% wage rule yet — many smaller Coimbatore employers are still running payroll on pre-November-2025 structures, which creates a growing compliance gap with every payroll cycle. We also regularly see PF applicability misjudged at the 20-employee threshold — the count includes all employees, not just those above the PF wage ceiling, a distinction that catches growing businesses off guard. Full and final settlements delayed well beyond the statutory timeline are another recurring issue, often simply from not having a documented FnF checklist ready before an employee’s last working day.
Documents you’ll need
- Employee master data (salary structure, PAN, Aadhaar, bank details)
- Monthly attendance and leave records
- Investment declarations for tax computation
- Existing PF/ESI/PT registration numbers
- Previous payroll register, for continuing clients
- Full and final settlement inputs for exiting employees
Payroll compliance across Coimbatore’s industries and areas
Payroll patterns differ sharply by sector. Textile and spinning mills on Tirupur Road and Avinashi Road run large factory-floor workforces with significant seasonal and fixed-term hiring, making the new one-year gratuity rule and PF wage-ceiling tracking especially material given headcount scale. IT and services firms in Saravanampatti and Peelamedu typically run smaller, fully salaried teams where the 50% wage rule and TDS regime-choice tracking dominate the compliance workload rather than PF/ESI wage-ceiling questions. Jewellers and traders in RS Puram and Gandhipuram often run leaner payrolls where PF/ESI applicability itself (the 20-employee threshold) is the first real question, before the finer structuring details matter. Manufacturers in Singanallur and Ganapathy frequently combine direct employees with contract labour, which means payroll compliance for the direct workforce runs alongside separate contract labour compliance for the rest — the two need to be tracked together, not as entirely separate exercises, since employee headcount classification affects both.
Frequently asked questions about Payroll Processing & Statutory Compliance
How has the New Labour Code changed salary structuring?
Under the Code on Wages (via the Code on Social Security, effective in phases), Basic + Dearness Allowance must equal at least 50% of total CTC, which increases the PF and gratuity contribution base for many employees — we've been restructuring salary components for Coimbatore clients to stay compliant while managing the take-home impact.
Is PF registration mandatory for my business?
Yes, once you employ 20 or more persons; below that, voluntary registration is possible and sometimes advisable to offer the benefit and attract talent.
What is the ESI wage ceiling and who is covered?
Employees earning up to ₹21,000 gross per month (₹25,000 for persons with disability) are covered under ESI, with contributions from both employer and employee funding medical and cash benefits.
How is TDS on salary calculated when an employee doesn't declare investments?
In the absence of a declared regime choice, TDS defaults to the new tax regime computation; under the old regime, TDS is computed net of declared 80C/80D and other eligible deductions, verified against proof at year-end.
What's included in a full and final settlement?
Unpaid salary up to the last working day, encashment of unused leave, gratuity (if eligible), bonus (if applicable), and any deductions for notice period shortfall or company property — computed and settled typically within the timeline prescribed under the applicable Shops & Establishments Act.
Do I need to run payroll differently for contract/temporary workers?
Contract labour compliance runs alongside payroll but under the Contract Labour (Regulation & Abolition) framework rather than direct-employee PF/ESI rules, unless the contract workers themselves cross the applicability threshold — we assess this separately for each engagement.
Do fixed-term employees now qualify for gratuity sooner?
Yes — under the Code on Social Security, fixed-term employees become eligible for gratuity on a pro-rata basis after just one year of continuous service, down from the five-year requirement that still applies to permanent employees. This matters a great deal for seasonal and project-based hiring.