New Labour Codes and Your Salary: What Changes in PF, Gratuity and Take-Home Pay

The four new labour codes have been in force since 21 November 2025, and the central government notified the detailed rules under all four on 8 May 2026. For a salaried employee, the change you are most likely to notice is in how your salary is structured. Under the Code on Wages, "wages" means basic pay, dearness allowance and retaining allowance, and if the excluded parts of your pay (HRA, conveyance and similar items) add up to more than half of your total remuneration, the excess is counted back into wages. Because PF, gratuity and several other benefits are calculated on wages, a low-basic, high-allowance salary structure can mean higher retirement contributions and, in some cases, a slightly lower take-home.

That is the headline. The details matter more, because the effect on your payslip depends on how your employer had structured pay before, whether your PF is calculated on the statutory ceiling or on full basic, and which state's rules apply to your employer. Here is a practical way to read what is happening to your salary.

The 50% wage rule, explained without jargon

Many Indian salary structures kept basic pay low, sometimes 30% to 40% of the total, and put the rest into allowances. That kept PF and gratuity costs down for employers and pushed up monthly take-home for employees.

The Code on Wages changes the base. It lists what is excluded from wages, including HRA, conveyance allowance, overtime, commission, the employer's PF contribution and bonus paid under law. Then it adds a proviso: if those excluded payments together exceed one-half of total remuneration, the amount above one-half is treated as wages anyway.

Take a simple, made-up example. Your monthly remuneration is ₹1,00,000, of which basic is ₹35,000 and allowances that fall in the excluded list are ₹65,000. Half of the total is ₹50,000, so ₹15,000 of the allowances spills back into "wages". For calculating things linked to wages, your wage base becomes ₹50,000 instead of ₹35,000.

Real payslips are messier, and some components are treated differently, so use this only to understand the logic.

What it does to your PF

This is where people expect a big drop in take-home and often do not see one. EPF contributions are subject to a wage ceiling, and many employers calculate PF only on that ceiling, not on your full basic. If your employer already caps your PF at the ceiling and your basic was above it, a higher wage base may change nothing on your PF line.

If your employer contributes on actual basic (common in larger companies), a higher wage base means a larger employee share deducted each month and a larger employer share going in. Your retirement savings go up; your monthly credit may go down a little. Neither outcome is good or bad in itself, but you should know which one applies to you before you compare offers. Our guide on CTC versus in-hand salary shows how to read a breakup line by line.

Gratuity: two changes worth knowing

First, gratuity is now calculated on wages as defined in the Code, using last drawn wages at exit. If your structure shifted towards a higher wage base, your eventual gratuity can be higher. The Labour Ministry has clarified, in FAQs reported widely in 2026, that the new gratuity provisions apply from 21 November 2025 and are not retrospective for earlier years.

Second, fixed-term employees become eligible for gratuity after one year of continuous service, on a pro-rata basis, instead of five. The government's own summary of the codes highlights this, along with equal wages and benefits for fixed-term staff compared with permanent staff. If you are offered a one- or two-year fixed-term contract, gratuity is now part of the comparison. Permanent employees generally still need five years.

Your appointment letter should say more now

The codes make appointment letters mandatory for all workers, and the OSH (Central) Rules, 2026 set out what the letter should contain where the Centre is the appropriate government. The list includes your designation, type of employment, date of joining, wages with basic pay and dearness allowance, applicable allowances, whether PF and ESI apply, and your UAN where available. States issue their own formats for employers under their jurisdiction, but the idea is the same.

In practice, this gives you a fair basis to ask questions. If your offer letter lists only a CTC figure and nothing else, it is reasonable to ask for the component-wise breakup and the employment type in writing before you accept. If anything looks unusual, our guide on offer letter red flags helps you separate normal clauses from worrying ones.

Other changes you may actually feel

Salary dates. For monthly wages, the Code on Wages requires payment before the seventh day of the following month. On resignation, retrenchment or removal, wages due must be paid within two working days. Full and final settlement may still take longer in practice, but the law on wages is clear.

Overtime. Where overtime provisions apply, it is paid at twice the normal rate, and the central rules cap overtime at 144 hours in a quarter. Many salaried professionals are not covered by overtime provisions, so check your contract and your company's policy.

Health check-ups. The government's summary says employers must provide a free annual health check-up to workers above 40.

Night shifts for women. Women can work night shifts in all establishments with their consent and with safety measures in place. That matters for roles in operations, support and global delivery.

Why your company may not have changed anything yet

Labour is a concurrent subject. The central rules apply where the Centre is the appropriate government; for most private employers, state rules matter too, and several states had not finished notifying theirs by mid-2026. During the transition, the government said existing rules continue where new ones are not yet in place. So if your payslip looks the same, it does not necessarily mean your company is ignoring the codes. It may be waiting for its state, or it may have restructured pay in a way that leaves your in-hand unchanged.

Questions to ask HR, politely

If you want clarity, one short email usually works better than a long debate. Something like this:

• Has my salary structure been revised for the new wage definition, and from which month?
• Is my PF calculated on the statutory ceiling or on my full basic, and has that changed?
• Has my employment type (permanent or fixed-term) been recorded, and how will gratuity be calculated for me?
• Can I get my appointment letter in the revised format?

If you are switching jobs now, ask the same questions of the new employer before you accept. It is easier to understand the structure at offer stage than to discover it on your first payslip. If you are preparing for that conversation, our guide to negotiating salary after an offer covers how to raise structure questions without sounding difficult.

The codes do not change your CTC by themselves. What they change is how that CTC can be split, and which parts count for PF and gratuity. Read your breakup with that lens and you will know whether a revision is good for you now, good for you later, or both. When you are ready to compare offers, you can browse jobs across India on CareerCola by category and work style.

This article is general information, not legal or tax advice.