When did the new labour codes come into force?

On 21 November 2025. Rules under the codes are still being framed in many areas, and existing rules continue during the transition.

What is the 50% wage rule?

If excluded allowances such as HRA, conveyance, bonus and commission exceed 50% of total pay, the excess is added to wages. Wages are used to calculate PF, gratuity and other benefits.

Will my take-home salary reduce under the labour codes?

It can, if your basic pay is less than half of your total pay and your employer pays PF on full wages. More of your CTC then goes into PF and gratuity.

Do fixed-term employees get gratuity after one year?

Yes. Under the Code on Social Security, fixed-term employees are eligible for gratuity after one year of continuous service, in proportion to their service.

How the new labour codes change your salary

Updated 11 October 2026

India's four labour codes came into force on 21 November 2025, replacing 29 older labour laws. For salaried people the biggest change is a common definition of "wages": if allowances outside basic pay make up more than half of your pay, the excess is counted as wages, which can raise PF and gratuity and lower take-home pay. Fixed-term employees also become eligible for gratuity after one year instead of five.

The four codes

Code on Wages, 2019: minimum wages, timely payment, bonus and equal pay.
Industrial Relations Code, 2020: trade unions, standing orders, retrenchment and disputes.
Code on Social Security, 2020: PF, ESI, gratuity, maternity benefit and social security for gig and platform workers.
Occupational Safety, Health and Working Conditions Code, 2020: working hours, leave, safety and welfare.

The codes are in force, but many central and state rules under them are still being finalised, and existing rules continue during the transition. Official information is on the PIB and Ministry of Labour websites.

The 50% wage rule

Under the codes, "wages" includes basic pay, DA and retaining allowance, and excludes items such as HRA, conveyance allowance, bonus, overtime, commission and the employer's PF contribution. The catch is a cap: if the excluded items add up to more than 50% of your total remuneration, the amount above 50% is added back to wages. In effect, wages must be at least half of total pay.

The same definition is used for PF, gratuity, bonus and other benefits. Many companies kept basic pay at 30% to 40% of salary, with the rest in allowances, partly to keep PF and gratuity costs low. Those structures are the ones most affected. Allowances that are not on the exclusion list, such as a general special allowance, are often treated as wages already.

Worked example

Worked example. Monthly pay of ₹50,000 is made up of basic + DA ₹15,000, HRA ₹20,000, conveyance allowance ₹5,000 and commission ₹10,000. Excluded items = ₹20,000 + ₹5,000 + ₹10,000 = ₹35,000. Half of total pay is ₹25,000, so the excess is ₹35,000 - ₹25,000 = ₹10,000. Wages under the code = ₹15,000 + ₹10,000 = ₹25,000. Gratuity after 5 years rises from ₹15,000 × 15/26 × 5 = ₹43,269 to ₹25,000 × 15/26 × 5 = ₹72,115, an increase of ₹28,846. PF: if PF is paid on wages up to the ₹25,000 ceiling, the employee's share rises from 12% × ₹15,000 = ₹1,800 to 12% × ₹25,000 = ₹3,000, so take-home pay falls by ₹1,200 a month while retirement savings rise. If the employer funds its higher share from the same CTC, take-home falls further.

Exactly how your employer applies this depends on the final rules and the company's own policy, so check your salary structure when it is revised. The salary calculator shows how basic pay changes take-home.

Gratuity changes

Fixed-term employees are eligible for gratuity after one year of continuous service, in proportion to their service. Permanent employees still need five years, except on death or disablement.
The formula stays the same: 15/26 × last monthly wages × completed years.
Because "wages" can now include part of your allowances, gratuity can be higher than before for low-basic salary structures.

See gratuity rules and the gratuity calculator.

Other changes that affect your pay

Appointment letters must be given to employees.
Timely wages: for monthly-paid staff, wages must be paid by the 7th of the following month.
Full and final settlement: wages due must be paid within two working days of resignation, dismissal, removal or retrenchment.
Overtime is paid at twice the normal wage rate.
Annual leave eligibility starts after 180 days of work in a year, down from 240 days in the older Factories Act.
Floor wage: the central government sets a national floor wage, and state minimum wages cannot be lower.
Gig and platform workers are brought under social security schemes funded partly by aggregators.

What does not change

Income tax: the codes do not change tax rules. Your tax still depends on your income and regime. See how to calculate income tax on salary.
Your CTC: the codes do not require a pay rise. A restructured salary usually keeps the same CTC but moves money from allowances and cash into PF and gratuity.
Central government pay: government employees' pay is set by pay commissions and DoE orders, not by these codes.

The EPF wage ceiling was separately raised to ₹25,000 from 17 September 2026. See EPF explained.