India's New Labour Codes Part 2: Setting up your payroll on RazorpayX Payroll

Business-focused summary (Labor codes compliance + RazorpayX Payroll product setup)

What the webinar covers (strategy + implementation goal)

• Objective: Make employers compliant with India’s new labor codes (wage structure changes) by showing how to configure salary structures in RazorpayX Payroll.
• Approach: First recap legal/compliance logic (from Session 1), then show hands-on configuration workflows for wage components, statutory contributions, and flexible benefits.

Key compliance concept: “wages” definition drives PF/ESI/gratuity calculations

The primary labor-code change discussed is how wages are determined for social security computations (PF, ESI, gratuity, PT/LWF depending on applicability). Importantly, only a portion of total salary counts as “wages” (components-based), not the entire CTC.

Wage calculation framework (as described)

• Step A: Sum all inclusions (fixed pay components + employer PF contribution + employer NPS contribution + statutory bonus, etc.)
• Step B: Sum all exclusions defined in the labor-code wage definition
• Step C: Take 50% of fixed components
• Net “wages” basis: subtract the lower of (B) and (C) from (A) to get wages used for PF/ESI/gratuity calculations.

Practical implication

Employers must classify each pay component correctly into:

• Included vs excluded
• Whether it should count for PF/ESI/gratuity and other wage-linked schemes

---

Product workflows in RazorpayX Payroll (playbooks/frameworks)

1) Salary Component Library (component-level configuration)

A new feature, Component Library, lets admins define all org-specific salary components and configure behavior per labor-code wage rules.

Component types supported

• Earning
• Deduction
• Non-payable benefit (e.g., company-paid medical insurance; “included in CTC” but not paid as payroll)
• Perquisite (taxable perquisite income)

Component settings called out (actionable configuration)

• Frequency / variability: fixed vs variable (ADOC/monthly/variable-type)
• Taxability: taxable vs non-taxable; tax treatment aligned to old/new tax regimes
• TDS behavior: instant deduction vs prorating till March
• Critical labor-code setting: whether the component is part of “wages” for:
  • PF
  • ESIC
  • Professional Tax (PT/LWF as applicable)
  • Gratuity

Examples mentioned:

• Special allowance / incentive: can be configured either as part of wages or not (depending on how you decide it under the wage definition)
• HRA / conveyance-like components: described as not part of wages in the configured example; therefore should be disabled from wage inclusion if your compliance stance requires it.

---

2) Multiple Salary Structures (template strategy for payroll optimization)

A new capability to define multiple salary templates/structures rather than a single one.

Why use it

• Optimize payroll cost for different employee bands (examples given):
  • Reduce gratuity expense and ESIC spend by using different structures for low vs high salaried employees.

Workflow

• Create additional structures (e.g., an example named like “BangSales/Bengaluru”).
• Configure fixed components and variable components % of CTC (illustrative values were shown).
• Assign templates by employee during onboarding or effective-dated salary revision.

---

3) Salary revision and onboarding flows (operational playbooks)

Onboarding

• When adding employees, the tool shows available templates; admins select which structure to apply.

Revision

• Salary revision supports choosing the effective date and the template (same template or switching to another).

Batch operations

• Admin can bulk change salary structures using:
  • a downloadable template + upload
• Bulk upload includes:
  • employee old CTC/structure (readout columns)
  • new CTC values
  • mapping to selected predefined templates or uploading custom component splits

---

4) Updated PF/ESI/LWF adjustment logic + statutory contribution representation

What changed (logic)

Adjustment logic for employer PF/ESI/LWF shifted to align with labor-code wage inclusion decisions.

• Earlier logic described:
  • PF adjusted from social allowance
  • ESIC adjusted from H
• New logic described:
  • Employer PF + ESIC + LWF are adjusted from Special Allowance itself
  • Goal: keep a lower/more optimized taxable wage profile, especially since H is not included in wages in the cited example.

What changed (UI/reporting)

• Statutory contributions moved to a separate “statutory contributions” section rather than being represented as part of gross salary earnings/deductions.
• Claim: this does not change net take-home or CTC impact—it’s a compliance/representational change.

---

Employee-facing changes (execution details)

Compensation view revamp

Employees can see:

• Total CTC
• breakdown of fixed vs variable
• statutory components
• perquisite income
• recurrent deductions
• flexi components

---

Flexible Benefits: meal allowance, car lease, employer NPS, etc. (tax + eligibility operations)

5) Flexi Benefits library + declarations (employee workflow enablement)

Flexi Benefits uses a library of flexible components assignable to employees.

Admins can create flexi components like:

• Meal allowance
• Car lease
• Fuel allowance
• Employer NPS (example used)

Key flexi configuration controls

• Cash vs reimbursement vs non-cash (tie-up):
  • If tied to providers (example brands: Sodexo/Zaggle), treated as non-cash
  • If paid with receipts, treated as cash benefit
• Declaration model:
  • Employee declaration enabled or auto-apply full amount
  • If declaration is enabled: employee can choose from an allowed values list (example options like 0 / 400 / 800)
• Tax regime settings:
  • Configure taxation in old/new regimes (example included different percentages for NPS % of basic)

Flexi-to-wages linkage principle (important operational rule)

Flexible benefits amounts are stated to be adjusted from Special Allowance. Therefore, to ensure correct payroll outcomes:

• Admin must ensure Special Allowance wage inclusion is enabled for the employee structure.
• If Special Allowance wage basis is unchecked, it may cause PF contribution behavior that increases employee/company totals beyond intended optimization.

Handling edge case: Special Allowance going “negative”

If wage adjustment would make Special Allowance negative, the system:

• Highlights during payroll finalization
• Admin must resolve by either:
  • increasing Special Allowance in the salary structure, or
  • disabling flexi benefits for that employee

---

Flexi claims UI (employee operations)

Employees can:

• view past flexi claims
• create new claims
• upload benefit proofs (e.g., meal allowance bills) where required
• submit for approval and track approval/status
• view a summary of claims by benefit type (claimed/approved/processed amounts)

---

Migration / rollout execution notes (operations + timeline)

• Demo version status: Not enabled for all customers immediately; some orgs already migrated to the new labor-code-aware “payroll engine 2.0” style setup.
• Form-based access: Participants can submit an org name form (Google form referenced) to enable the new interface.
• Migration timeline guidance: For customers who opt in, migration expected within 1–2 days (e.g., “by tomorrow / within next two days” stated).

---

Business guidance from the compliance expert (how to decide configuration)

“Software supports your interpretation; compliance risk management matters”

The CA emphasizes:

• Organizations may be conservative or aggressive in wage-component interpretation.
• The tool supports detailed configurability.
• The key is choosing inclusion/exclusion/wage handling that minimizes avoidable P&L impact (notably around gratuity).

Additional compliance areas beyond wage definition

Aside from wage structure:

• revise offer letters
• required disclosures
• ongoing compliance impacts like state rules on minimum wages, night shifts/shift allowances, etc.

Recommendation: for nuanced or company-specific cases, seek CA consultation.

---

Metrics / KPIs / targets

• No explicit numeric business KPIs (revenue, CAC, LTV, churn) were provided.
• Examples/illustrations included percentages/amounts (e.g., variable components as % of CTC; meal allowance per meal limits; NPS % of basic), but not as formal targets or success metrics.

---

Concrete examples/case illustrations mentioned

• Component inclusion toggle examples:
  • Special allowance set to be included in wages vs H disabled from wages.
• Multiple structures example:
  • Create and assign different templates based on salary brackets (e.g., low vs high CTC) to optimize gratuity/ESIC spend.
• Flexi benefits example:
  • Meal allowance configured with meal-rate caps logic and working-days multiplication (illustrative)
  • Employer NPS declared with different % of basic for old vs new regimes
• Bulk updates example:
  • Upload sheet to set new CTC and assign chosen template effective from 1 April (example effective date used).

---

Presenters / sources

• Nikita – RazorpayX Payroll team (host)
• Apurva – RazorpayX Payroll team (co-presenter; handled portions of demo/Q&A)
• Mr. Shri Harsha / Harsha (spelled variably in subtitles as “Hersha”/“Harsha”) – CA, founder of Comply Solutions (labor code wage/compliance expert)
• RazorpayX Payroll / RazorpayX Payroll product team (implied by demos and features shown; specifically discussed: Component Library, Salary Structures, Flexi Benefits modules)