How India’s New Labour Codes Will Impact Your Take-Home Salary, Provident Fund, and Gratuity
The Government of India has restructured the country’s employment regulations by merging 29 existing labour laws into four comprehensive labour codes. These include:
- Code on Wages
- Industrial Relations Code
- Social Security Code
- Occupational Safety, Health and Working Conditions (OSH) Code
These reforms aim to simplify compliance, expand social security coverage, and bring uniformity to labour regulations. However, they also introduce major changes to salary calculation, PF contributions, gratuity rules, and work conditions. As a result, employees may experience a shift in their take-home income and benefits.
1. Unified Definition of “Wages”
One of the most impactful changes is the standardized definition of “wages.” Under the new labour codes:
- Wages include Basic Salary, Dearness Allowance, and Retaining Allowance.
- Allowances such as HRA, travel allowance, overtime payments, bonus, and special allowances are excluded.
- If the excluded allowances exceed 50 percent of the total compensation, the excess amount must be added back to wages.
What this means
Your basic salary must now constitute at least 50 percent of your total salary (CTC).
Earlier, many organizations reduced statutory deductions by keeping the basic salary low and increasing allowances. Under the new codes, companies must restructure the salary breakup to maintain the 50 percent wage requirement.
2. Impact on Take-Home Salary
The increase in basic salary will automatically raise statutory deductions such as:
- Employee Provident Fund (PF) contribution
- Employer PF contribution
- Gratuity base
- Social security contributions
Result
Employees may see a reduction in their monthly take-home salary, even if the overall CTC remains unchanged.
Those with a salary structure heavily loaded with allowances will see the greatest shift.
3. New Rules for Gratuity Eligibility and Calculation
The new labour codes significantly change gratuity provisions.
Key Changes
Eligibility for fixed-term employees reduced to one year
Fixed-term employees will now qualify for gratuity after completing one year of service, compared to the earlier requirement of five continuous years.
Higher gratuity amount
Since gratuity is calculated based on wages, and wages now must be at least 50 percent of the salary, gratuity payouts will increase accordingly.
Uniform rules across job categories
The labour codes bring standardization, ensuring that permanent, contractual, and fixed-term workers receive more equal treatment.
4. Changes in Working Hours, Leave, and Overtime
The labour codes also include reforms related to working conditions.
Working Hours
A workday may vary between eight and twelve hours, but the weekly limit remains fixed at 48 hours.
Overtime
Employers must pay overtime at twice the ordinary rate of wages.
Clear records of hours worked are now mandatory.
Appointment Letters
Every employee, including contract and fixed-term workers, must be given a formal appointment letter.
Expanded Social Security
The Social Security Code extends benefits to platform workers, gig workers, and contract workers under various schemes that will be notified over time.
5. Who Benefits the Most
Fixed-term Employees
They gain faster access to gratuity, becoming eligible in one year.
Employees Focused on Long-Term Savings
Higher PF deductions result in better retirement savings.
Gig and Platform Workers
They receive expanded protection under social security schemes.
Employees With Previously Low Basic Salaries
Their retirement benefits will improve due to the revised wage calculation.
6. Who May Be Adversely Affected
Employees With High Allowances
They may face a reduction in take-home salary because of increased PF and gratuity-related deductions.
Employers
Organizations must take on increased contribution obligations and adjust salary structures, which may raise operational costs.
7. What Employees Should Check in Their Payslips
Employees should review:
- Basic salary percentage to confirm it meets the 50 percent rule.
- Any increase in PF deductions.
- The revised gratuity base.
- Changes in the take-home salary amount.
- Updated salary structure issued by HR.
8. Overall Impact on Employees
Short-Term Impact
Monthly take-home salary may decline due to higher statutory deductions.
Long-Term Impact
Employees will benefit from increased PF savings, higher gratuity payouts, and improved social security. The new system promotes transparency and long-term financial stability, even though it may initially feel restrictive.