India’s Four Labour Codes: A Strategic Workforce Transformation for Banks, NBFCs & Financial Institutions

Introduction

India’s Four Labour Codes that are Code on Wages, Industrial Relations Code, Social Security Code, and the Occupational Safety, Health & Working Conditions Code, represent a structural shift in how organisations must design compensation, manage people, and govern labour compliance.

For the BFSI ecosystem, which operates through large distributed workforces, high regulatory scrutiny, heavy outsourcing, and high-attrition operational roles, the Codes are not a mere compliance exercise, they form a new operating system for workforce governance.

Banks, NBFCs, fintech lenders, payment companies and insurance distributors must now rethink how they structure compensation, contracts, vendor relationships, investigations, safety norms and employee redressal frameworks.

This article presents a strategic, forward-looking interpretation of the Codes and provides a detailed CTC restructuring framework including methods to ensure take-home salary does not reduce, one of the most sensitive areas during Code-driven transitions.

I. CODE ON WAGES: The Compensation Architecture Reset

The most transformative requirement under the Code on Wages is the 50% wage rule, Basic + DA must now constitute at least 50% of total remuneration, and all allowances combined cannot exceed 50%. For BFSI where allowance-heavy structures have been used for years to manage PF and gratuity outflows, this fundamentally alters compensation physics.

Strategic implications for BFSI

•  PF, gratuity, leave encashment, and bonus liabilities will increase.
• Allowance-heavy roles (sales, collections, operations junior staff) must be re-engineered.
• Exit payments accelerate full and final settlement must happen within two working days.
• Minimum wages must be complied with across hundreds or thousands of branches in multiple states.
• This Code compels banks and NBFCs to redesign pay not as a cost arbitrage tool, but as a compliance and governance obligation.

II. INDUSTRIAL RELATIONS CODE: A New Governance Framework for Employee Relations

The Industrial Relations Code modernises dispute management and employer-employee governance.

Key implications

1. Mandatory completion of disciplinary inquiries within 90 days: Banks and NBFCs where fraud, mis-selling, asset misappropriation and conduct violations are more frequent, must overhaul investigation processes. Delay is no longer permissible.

2. Structured representation: Sole Negotiating Union / Negotiating Council: Union negotiation becomes consolidated and predictable – highly relevant for PSU banks and some private sector banks.

3. Mandatory Grievance Redressal Committees for establishments with ≥50 employees: All major branches, head offices, hubs and back offices will require GRCs with 10 members and mandatory women representation. This Code shifts BFSI from informal HR practices to codified, time-bound governance.

III. SOCIAL SECURITY CODE: New Obligations for Fixed-Term, Gig & Outsourced Workers

The Social Security Code expands coverage beyond classical employees.

Key implications

1. Gratuity for fixed-term employees after one year: Massive impact for banks/NBFCs using fixed-term staff in tele-calling, KYC, sales and collections.

2. Gig and platform worker recognition: Fintech lenders, digital banks and payments companies relying on app-based partners must now budget for social security contributions.

3. Unified EPF/ESIC registration and enhanced enforcement: Centralised digital registration means fewer compliance loopholes and higher exposure to audits.

IV. OCCUPATIONAL SAFETY, HEALTH & WORKING CONDITIONS CODE: Safety in a Distributed BFSI Network

The OSH Code applies to all establishments even offices and branches.

Strategic implications

• Banks/NBFCs become responsible for the safety of employees, customers, visitors, contract labour and DSAs present on premises.
• Night-shift safety obligations for women apply to call centres, payments ops, fraud monitoring teams.
• Large offices may require crèche facilities.
• Safety facilities (water, restrooms, first aid, fire safety) must be consistently available across all branches.
• This extends BFSI’s risk management obligations into the physical domain.

V. CTC RESTRUCTURING UNDER THE LABOUR CODES: THE DEFINITIVE FRAMEWORK FOR BFSI

The 50% wage rule forces complete re-engineering of the CTC architecture. But the transition must be done carefully to avoid lowering employee take-home, triggering attrition and eroding morale. Below is the full CTC restructuring blueprint, now including strategies to ensure take-home salary does not reduce.

A. PRINCIPLES OF THE NEW CTC STRUCTURE

1. Basic Pay must be ≥50% of total remuneration

2. Allowances across HRA, special allowance, conveyance etc. cannot exceed 50%

3. Variable pay must be true variable, not disguised fixed pay

4. Reimbursements must be genuine, not allowances in disguise

5. PF, gratuity, and all statutory benefits must be calculated on the higher Basic Pay

B. THE NEW CTC MODEL FOR BFSI

1. Wage Components (≥50%)

• Basic Pay (40–45%)
• DA or Retaining Allowance (5–10%)

2. Allowance Components (≤50%)

• HRA
• Special Allowance
• Location/Transport Allowance
• Flexi Basket

3. True Variable Pay (Outside Wages)

• Performance Incentives
• Sales Incentives
• Collections Bonuses
• Annual Bonus

4. Reimbursements (Outside Wages)

• Fuel
• Internet
• Travel
• Business expenses

5. Retirals (On New Wage Base)

• PF
• Gratuity
• Leave encashment

HOW TO ENSURE TAKE-HOME SALARY DOES NOT REDUCE

One of the most powerful and practical parts of the restructuring is ensuring no employee suffers a drop in in-hand salary. Here are the three models banks and NBFCs can use.

MODEL 1: Increment-Offset Model

(“Ensure take-home remains unchanged by adjusting CTC upward slightly”) When Basic Pay increases to meet the 50% rule, PF deduction increases, reducing take-home. This model neutralises the drop.

Mechanism:

• Increase CTC slightly
• Use a compensatory allowance within the 50% limit
• Keep take-home identical to pre-Code levels

Why BFSI uses this:

• Prevents attrition in sales and branch staff
• Easiest to communicate
• Predictable financial modelling

MODEL 2: PF Restriction & Variable Rebalancing Model

(“Compliant, no CTC increase required, take-home preserved”) PF law allows PF contributions to be capped at the statutory ceiling (₹15,000 wage base), even if Basic is much higher.

Mechanism:

• Raise Basic Pay to 50% to meet Code requirements
• But keep PF contribution fixed at ₹1,800 (employee) + ₹1,800 (employer)
• Restructure allowances and variable pay to maintain take-home

Why BFSI prefers this:

• Zero increase in CTC
• Take-home preserved or improved
• Fully compliant with PF Act

MODEL 3: Allowance Consolidation Model

(“Offset higher PF deduction with tax-efficient components”) Instead of increasing cost, optimise taxes.

Mechanism:

• Reduce taxable allowances
• Increase reimbursements (telephone, fuel, internet)
• Improve tax efficiency so take-home increases despite higher PF

Why BFSI uses this:

• Ideal for mid/high-income roles
• Cost-neutral
• Enhances employee satisfaction

IMPLEMENTATION TIMELINE: WHAT MUST BE DONE NOW VS LATER

IMMEDIATE (0–90 DAYS)

1. Audit current CTCs and identify non-compliant structures

2. Finalise new CTC templates (sales, branch banking, ops, senior management)

3. Choose take-home preservation model (1, 2 or 3) per role type

4. Update payroll algorithms for new wage definitions

5. Reconstitute GRCs and prepare for 90-day disciplinary timelines

6. Conduct OSH safety and facility compliance checks across branches

These actions ensure full legal compliance and zero employee backlash.

MEDIUM TERM (3–12 MONTHS)

1. Full vendor compliance overhaul and contract rewrites

2. Workforce categorisation under Social Security Code (permanent vs fixed-term vs gig)

3. Build automated multi-state wage compliance systems

4. Standardise investigation and disciplinary processes

5. Implement night-shift and facility requirements across applicable units

These actions create sustainability, predictability and audit readiness.

LONG TERM (12–24 MONTHS)

1. Reshape workforce architecture: fixed-term staffing, digital gig onboarding, outsourcing governance

2. Establish enterprise-wide labour compliance dashboards

3. Build competencies in HR, risk and compliance teams for the new Codes

This positions BFSI institutions for strategic HR stability and regulatory trust.

Conclusion: A New Operating System for BFSI Workforce Strategy

India’s Labour Codes force banks, NBFCs and financial institutions to rethink compensation, compliance and governance at a fundamental level. The organisations that respond proactively by re-engineering CTCs, preserving take-home pay, redesigning disciplinary processes and strengthening safety and social security frameworks will emerge as employers of choice and compliance leaders.

Those that delay will face cost shocks, employee dissatisfaction, compliance risks and supervisory attention. The Codes are not a burden but an opportunity to modernise workforce architecture and build long-term institutional resilience.