Remember that confusing breakdown on your payslip? With the government’s implementation of the new labour codes on November 21, 2025 , that document is about to get a significant overhaul—and it could directly hit (or help) your wallet.
These aren’t just minor tweaks. The government has consolidated 29 old laws into four comprehensive codes, creating a uniform system that aims to protect workers while standardizing practices for employers . But the most immediate and personal impact for millions of employees revolves around a single, powerful term: the definition of wages.
So, what exactly changes for you? Let’s cut through the legal jargon and get to the heart of it.
Table of Contents
- What Are the New Labour Codes?
- The Game-Changer: The New Definition of Wages
- How This Affects Your Gratuity Benefit
- The Take-Home Salary Dilemma
- Key Takeaways for Employees
- Sources
What Are the New Labour Codes?
The “new labour codes” refer to a set of four laws that have now replaced a maze of nearly three dozen older regulations. These four codes cover:
- The Code on Wages, 2019
- The Industrial Relations Code, 2020
- The Code on Social Security, 2020
- The Occupational Safety, Health and Working Conditions Code, 2020
Their primary goal is to create a more business-friendly environment while simultaneously extending social security to a wider net of workers, including gig and platform workers .
The Game-Changer: The New Definition of Wages
This is where things get personal. The new labour codes introduce a strict, uniform definition of ‘wages’ that will dictate your Provident Fund (PF), gratuity, and bonus calculations.
Under the new rules, your “wages” must constitute at least 50% of your total monthly remuneration (or Cost to Company – CTC) . This core component is now clearly defined to include:
- Basic Pay
- Dearness Allowance (DA)
- Retaining Allowance
Everything else—like your house rent allowance (HRA), conveyance allowance, special allowances, and overtime pay—falls into the “excluded” category, but its total cannot push the wage component below the 50% threshold .
For years, many employers structured salaries with a low basic pay and high allowances to minimize their contributions to statutory benefits. The new rules shut this door completely.
How This Affects Your Gratuity Benefit
This is where most employees stand to gain significantly in the long run. Gratuity, that lump-sum retirement benefit, is now calculated on this new, higher base of “wages.”
The formula remains the same: (15 days of last drawn wages) for every year of service completed . But because “wages” are now a much larger portion of your salary, your final gratuity payout could be substantially higher.
Furthermore, the eligibility for fixed-term employees has been drastically reduced from five years to just one year of service , extending this crucial benefit to a much larger workforce.
Comparing Old vs. New Gratuity Calculation
Imagine an employee with a CTC of ₹1,000,000.
- Under the Old System: Basic Pay (₹300,000) + HRA & Other Allowances (₹700,000). Gratuity was calculated on just the ₹300,000.
- Under the New Labour Codes: Wages (₹500,000 minimum) + Other Allowances (₹500,000). Gratuity is now calculated on a minimum of ₹500,000—a potential 66% increase in the gratuity base!
The Take-Home Salary Dilemma
There’s no sugarcoating it: for many employees, the monthly take-home pay might see a slight reduction . With a higher basic wage component, both your and your employer’s contributions to the Employees’ Provident Fund (EPF) will increase. Since the EPF is a deduction from your salary, your net pay could be lower.
However, it’s a classic case of short-term pain for long-term gain. You’re essentially forced to save more for your retirement through a higher PF corpus, and you’re building a much larger entitlement for your gratuity .
Employers, facing a 5-10% increase in their overall salary costs due to higher PF and gratuity liabilities, might restructure CTCs for new hires to offset these expenses . This is a critical point for anyone negotiating a new job offer in this new landscape.
Key Takeaways for Employees
So, what should you, as an employee, do now?
- Scrutinize Your New Payslip: Once your company implements the new structure, check that your “wages” are indeed at least 50% of your total CTC.
- Don’t Fear a Slightly Lower Take-Home: Understand that the money is being redirected into your long-term security.
- Ask Your HR Department: If you have questions about how the transition affects your specific compensation, speak to your HR team for a clear breakdown.
- Plan for the Future: Your higher PF and gratuity will significantly boost your retirement nest egg. Factor this into your long-term financial planning.
In essence, the new labour codes are a massive shift towards formalizing benefits and ensuring a more secure future for India’s workforce, even if it means a minor adjustment to your monthly budget today. It’s a fundamental change from a system that often worked against the employee’s long-term interests to one that actively builds their financial security.
For more on how to manage your personal finances in this new landscape, check out our guide on [INTERNAL_LINK:retirement-planning-in-india].
Sources
- Government of India, Ministry of Labour and Employment. “Implementation of Four Labour Codes.” November 2025.
- “India’s New Labour Codes: Wages, Workers, and Welfare.” Legal & Compliance analysis. December 2025.
- “New Labour Codes Redefine Wages, Impacting Take-Home Salary.” Economic Times. November 2025.
- FAQs on Labour Codes, Government of India. December 2025.
- “New Labour Codes 2025: Who Qualifies for Gratuity After the Big Change?” Business Today. November 2025.
- International Labour Organization (ILO) – India Country Office. “Labour Law Reforms in India.” https://www.ilo.org/india