OSH Code payroll compliance : You have hired your first team in India, and your payroll provider asks a question your home-country playbook never covered: are your attendance, overtime and leave records ready for the new labour codes? For foreign companies, NRIs, global startups and overseas investors, OSH Code payroll compliance is now a core operating requirement. It sits at the intersection of wages, working hours, safety and employment documentation.
India’s Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code) merged thirteen older central laws, including the Factories Act, the Contract Labour Act and the Inter-State Migrant Workmen Act. It works alongside the Code on Wages, 2019 and the Code on Social Security, 2020, and the four labour codes were brought into force in November 2025. This guide explains what changes for payroll, who is covered and how a foreign-owned entity can stay compliant. Startup Solicitors LLP advises international clients on this regularly, and the practical points below reflect those engagements.
Understanding OSH Code Payroll Compliance in the Indian Context
The OSH Code does not set salary structures. The Code on Wages does that. But the OSH Code controls the inputs that drive payroll: working hours, overtime, shifts, leave, night work, appointment records and welfare entitlements. Any error in these inputs becomes an error in wages.
Key concepts:
- Establishment: a factory, mine, dock, plantation or commercial or service workplace. The Code generally applies once an establishment employs 10 or more workers. Factories and contract-labour arrangements have separate thresholds.
- Employee vs. worker vs. contract labour: each category carries different obligations, and misclassification is a common audit finding.
- Principal employer: the foreign-owned Indian entity remains accountable for contractors’ compliance.
A US or European parent used to flexible, salaried-exempt models will find India more prescriptive. Hours, overtime multipliers and leave accrual are statutory, not contractual.
Legal Framework & Regulations in India
| Law | What it governs | Payroll relevance |
|---|---|---|
| OSH Code, 2020 | Hours, overtime, leave, safety, welfare, appointment letters | Attendance, overtime pay, leave encashment |
| Code on Wages, 2019 | Wage definition, timely payment, minimum wages, bonus, equal remuneration | Salary structure, deductions, payment dates |
| Code on Social Security, 2020 | PF, ESI, gratuity, maternity benefit | Statutory contributions |
| Companies Act, 2013 | Entity governance and records | Director and officer compliance |
Enforcement sits with the Ministry of Labour and Employment, state labour departments and inspector-cum-facilitators. Rules are notified by both central and state governments, so state-level rules can differ. Always confirm the current notification for the state where your entity operates.
For foreign entities, the legal wrapper matters too. Whether you use a private limited company, an LLP or a branch office, the employer obligations are identical, though the registrations differ. Foreign firms choosing their structure should review private limited company registration options, and the government’s corporate registry at MCA is the starting point for entity records.
Key Payroll Provisions Under the OSH Code
- Working hours: generally capped at 8 hours a day and 48 hours a week, with prescribed rest intervals.
- Overtime: work beyond limits must be paid at twice the normal rate of wages.
- Annual leave: one day for every 20 days worked, subject to eligibility.
- Women employees: night work is permitted with consent and prescribed safeguards.
- Appointment letters: written appointment documents are mandatory for employees.
- Health check-ups: employers must arrange annual check-ups for specified categories of workers.
- Migrant workers: inter-state migrant workers are entitled to a yearly journey allowance.
Under the Code on Wages, exclusions from “wages” such as certain allowances are generally capped at 50% of total remuneration. This can raise the base for PF, gratuity and overtime. Foreign firms with heavy allowance-based pay structures should model the impact before 2026 payroll cycles.
Step-by-Step Process to Achieve Compliance
- Determine applicability. Count workers by establishment and state, and identify any contract labour.
- Register the establishment. Complete registration through the designated labour portal and obtain the required licences.
- Map the pay structure. Re-test the salary breakup against the wage definition.
- Issue compliant appointment letters stating designation, wage components, hours and leave terms.
- Configure attendance and overtime rules in payroll software.
- Maintain registers and returns for hours, wages, leave and overtime, in the formats the state requires.
- Reconcile statutory deductions (PF, ESI, professional tax, TDS) every month.
- Audit annually against the latest rules and notifications.
Considerations by entity type:
- Indian residents/promoters: ensure promoter-directors who also draw salary are correctly classified.
- NRIs: an NRI-owned Indian company follows identical rules. Plan for TDS and income tax return filing on salary and director remuneration.
- Foreign companies: a branch or subsidiary is the employer of record. Expatriates need valid work authorisation, covered under employment visa applications, and may fall under social security rules.
- Global startups: remote hires without an Indian entity create permanent-establishment and misclassification risk. A structured company setup in India or an employer-of-record route is safer.
- Overseas investors: diligence should check labour registers, pending inspections and contractor compliance. Reviewing due diligence and compliance audits before closing prevents inherited liabilities.
Key Challenges and Practical Issues
- Overtime errors: paying a flat rate instead of double wages is the most frequent violation.
- Allowance-heavy salaries: these inflate non-wage components and understate statutory contributions.
- Documentation gaps: missing appointment letters, attendance logs and leave ledgers.
- Contractor oversight: principal employers are liable when staffing vendors default.
- State-level variation: a pan-India team may need different registers and filings in each state.
- Foreign-parent policies: global HR policies that conflict with statutory leave or hours.
A realistic example: a European software firm with 60 employees in Bengaluru paid fixed monthly “all-inclusive” salaries and logged no attendance. On review, long-hour project phases produced unrecorded overtime exposure. Introducing time-tracking and revising the salary structure resolved it before any inspection.
Strategic Insights & Expert Recommendations
- Build compliance into the structure. If you are planning company formation in India, design payroll and HR policies before the first hire. This is easier than retrofitting. Foreign nationals can explore business setup in India for foreign nationals.
- Outsource with oversight. Payroll management and outsourced accounting services reduce errors, but accountability stays with you.
- Keep tax and labour aligned. Payroll feeds taxation and compliance services such as TDS and professional tax, and the Income Tax Department portal is the reference for filings.
- Strengthen governance. Board-level oversight through corporate governance compliance keeps labour risk visible.
- Protect cross-border flows. Parent-to-subsidiary salary and cost-sharing should follow FEMA and RBI compliance.
- Use a decision framework. Ask four questions per hire: Is the role employee or contractor? Which state applies? Does pay meet the wage definition? Are hours and leave documented? A “no” to any is a risk to fix.
Scaling firms should also watch GST registration and corporate law and legal advisory needs as headcount and revenue grow.
FAQs
1. What is OSH Code payroll compliance?
It means aligning wage-related inputs, such as working hours, overtime, leave, appointment letters and records, with the Occupational Safety, Health and Working Conditions Code. Payroll must reflect statutory limits and entitlements, supported by registers that labour authorities can inspect.
2. Does the OSH Code apply to foreign-owned companies in India?
Yes. Any Indian entity, including subsidiaries and branch offices of foreign companies, must comply once it meets the applicability thresholds, generally 10 or more workers. Ownership does not change the employer’s statutory obligations.
3. How is overtime paid under the OSH Code?
Work beyond prescribed daily or weekly limits must be paid at twice the normal rate of wages. Employers should record overtime accurately, since flat-rate payment is a common compliance gap during inspections.
4. Can NRIs running Indian companies follow the same payroll rules?
Yes. An NRI-promoted Indian company follows the same labour, wage and tax rules as any domestic employer. Additional attention is needed for director remuneration, TDS and foreign exchange regulations.
5. What records should foreign firms maintain?
Maintain appointment letters, attendance and overtime registers, wage and leave records, contractor details and statutory returns. Keep them updated per state rules, as inspectors may request them during routine checks or audits.
Conclusion
OSH Code payroll compliance is no longer a back-office detail for foreign firms. It affects cost, culture and legal exposure. Getting hours, overtime, leave and documentation right from day one supports smoother company setup in India and credible investor diligence. Since rules continue to be notified at central and state levels, verify the latest requirements before each payroll year.
If you want a structured review of your payroll and labour compliance, you can contact Startup Solicitors LLP for a practical, no-pressure discussion.
Disclaimer: This article is for general information and is not legal advice. Confirm current notifications with the relevant authority.