New Labour Codes 2025: How Your Salary Changes

India's four labour codes came into force on 21 November 2025, replacing 29 older labour laws. For a salaried employee the change that matters most is a single definition of wages, with a rule that your basic pay and DA cannot be pushed below half of your total pay. That one definition feeds into PF, gratuity and several other payments, and it is why many employers have been reworking salary structures.

Everything below is based on the Code on Wages, 2019, the Code on Social Security, 2020 and the Labour Ministry's published FAQs on the codes.

The four codes in one line each

• Code on Wages, 2019: minimum wages, payment of wages, bonus and equal pay. It holds the new definition of wages.
• Code on Social Security, 2020: PF, ESI, gratuity, maternity benefit and gig worker welfare.
• Industrial Relations Code, 2020: trade unions, standing orders, layoffs and retrenchment.
• Occupational Safety, Health and Working Conditions Code, 2020: working hours, leave, overtime and appointment letters.

Until the new rules under each code are notified, the Labour Ministry says the old rules stay in force as far as they are consistent with the codes.

The new definition of wages

Wages now mean all remuneration, and specifically include basic pay, dearness allowance and retaining allowance. Some things are kept out: performance-based incentives, ESOPs, the variable part of pay and reimbursements are not wages.

Then comes the part that changes numbers. If your allowances add up to more than 50% of your total remuneration, the excess is added back to wages. Gratuity and retrenchment compensation are left out of that allowance count, and the ministry has confirmed that leave encashment is not treated as an allowance either.

A worked example

Say your monthly pay is ₹70,000, made up of basic ₹30,000, HRA ₹15,000 and a special allowance of ₹25,000.

Your payslip can still show a ₹30,000 basic. For statutory calculations, though, your wages are ₹35,000.

What it does to PF

Employee and employer PF are each 12% of wages. Under the new definition, wages can be higher than your basic, so PF can rise. How much depends on one choice your employer makes:

• If PF is capped at the wage ceiling, ₹25,000 a month since 17 September 2026, the deduction stays at ₹3,000 a month from you and the same from the employer whenever your wages are above the ceiling, so little changes.
• If PF is taken on full wages, the higher wage base raises both contributions. In the example above, employee PF goes from ₹3,600 to ₹4,200 a month, and the employer's share rises by the same ₹600.

Because the employer's PF sits inside your CTC, a higher PF also lowers your gross salary for the same CTC. Take-home falls; your retirement balance grows faster. Separately, the PF wage ceiling rose from ₹15,000 to ₹25,000 on 17 September 2026; the EPF wage ceiling guide covers that change.

What it does to your take-home

The in-hand effect depends on whether your employer raises basic and how it runs PF. For a ₹12 LPA CTC in the new regime, using the in-hand salary calculator:

So a bigger basic on its own changes nothing when PF is capped. The drop only comes when PF follows the full basic, and in that case the money has not vanished: it is going into your EPF account, earning interest and, after five years of service, coming out tax-free. Every in-hand salary by package page now shows this comparison for its own CTC.

Gratuity changes

The Code on Social Security carried the gratuity formula over: 15 days' wages for every year of service, based on the wages you last drew, with any part-year over six months counted as a full year. Three things moved around it:

• The wage base is the new definition, so the 50% add-back can raise your gratuity.
• Fixed-term employees no longer need five years. When a fixed-term contract ends, gratuity is paid pro-rata, and the ministry says one year of service qualifies. Permanent employees still need five years, waived on death or disablement.
• The ceiling is ₹20 lakh, the amount currently notified by the government.

The ministry has said the code's gratuity provisions apply from 21 November 2025, not retrospectively. The gratuity calculator handles both the permanent and fixed-term cases.

Your final settlement within two working days

Section 17(2) of the Code on Wages says wages due to an employee who has been removed, dismissed or retrenched, or who has resigned, must be paid within two working days of that event. That covers the salary you have earned up to your last day. Gratuity has its own clock, and PF is settled with EPFO rather than your employer. The details, including what goes into the settlement and how it is taxed, are in full and final settlement rules.

Other changes worth knowing

• Overtime is paid at twice the ordinary rate of wages.
• Every employee should get an appointment letter under the safety and working conditions code.
• Supervisors earning more than ₹18,000 a month are not "workers" under that code, which affects who some protections apply to.
• The wage definition applies across all four codes, including for ESI coverage, from 21 November 2025. The ESIC contribution guide shows how it moves the ₹21,000 limit.

What to check on your own payslip

Add up everything other than basic, DA and retaining allowance. If it is more than half of your total pay, your statutory wages are higher than your basic. Then look at your PF line: if it is ₹3,000, or ₹1,800 before October 2026, your PF is on the ceiling. If your employer sends a revised structure, run both versions through the in-hand salary calculator before you sign it.

Frequently asked questions

When did the new labour codes come into force?

On 21 November 2025. All four codes took effect together, and the single definition of wages has applied from that date.

Is it now compulsory for basic salary to be 50% of CTC?

Not in those words. The rule is that if allowances exceed 50% of total remuneration, the excess counts as wages for statutory purposes. Employers can keep a lower basic, but PF and gratuity will be worked out on the higher figure, which is why many are simply raising basic.

Will the labour codes reduce my take-home salary?

Only if your PF is taken on full wages and your wages go up. If your employer caps PF at the ₹25,000 wage ceiling, a bigger basic makes almost no difference to take-home.

Do I need five years of service for gratuity under the new code?

Permanent employees still do. Fixed-term employees get gratuity pro-rata when their contract ends, without the five-year condition; the Labour Ministry says one year of service qualifies.

How soon must my employer pay my final salary?

Within two working days of your resignation, removal, dismissal or retrenchment, under section 17(2) of the Code on Wages.