New Labour Codes: The 50% Wage Rule and What It Means for Your Salary, PF and Gratuity
India’s four Labour Codes came into force on 21 November 2025. Basic + DA must now be at least 50% of pay, which can raise PF and gratuity and lower take-home pay. Examples inside.
In short: on 21 November 2025 the four Labour Codes — Wages, Industrial Relations, Social Security, and Occupational Safety, Health and Working Conditions — came into force, replacing 29 older labour laws. The change that touches almost every payslip is the new, uniform definition of “wages”.
The 50% rule
“Wages” means Basic + Dearness Allowance + Retaining Allowance. Allowances such as HRA, conveyance and special allowance cannot be more than 50% of total pay. If they are, the extra is added back to wages when PF, gratuity, bonus and similar dues are calculated.
Example
Monthly pay ₹50,000 with Basic ₹20,000 (40%) and allowances ₹30,000 (60%). Allowances are ₹5,000 over the 50% limit, so wages for statutory calculations become ₹25,000, not ₹20,000.
- Gratuity is calculated on the higher wage, so it grows.
- PF rises if PF is paid on actual wages; it stays ₹1,800 a month if the employer contributes only on the ₹15,000 wage ceiling.
- Take-home pay may fall slightly because more goes into PF.
Other changes worth knowing
- Fixed-term employees become eligible for gratuity after one year of continuous service.
- Weekly work hours stay capped at 48 hours, and overtime is paid at twice the ordinary rate.
- Appointment letters are required for workers, and gig and platform workers are covered under social security.
What employers should do
- Restructure salary so that Basic + DA is at least 50% of pay. Our offer letter and appointment letter generators now use Basic = 50% of monthly CTC.
- Recalculate PF and gratuity provisions, and update salary slips.
- Check state rules — some details depend on rules notified by each state.
Estimate the effect with the gratuity calculator and EPF calculator.
Sources
- TaxGuru — New Labour Codes (w.e.f. 21 November 2025)
- Khaitan & Co — Enforcement of the Labour Codes
- greytHR — Labour Codes HR compliance guide
Updated 2 October 2026. General information, not legal advice — state rules and your employer’s policy may differ.
Frequently asked questions
What is the 50% wage rule?
Basic + DA + retaining allowance must be at least 50% of total pay. Allowances above 50% are added back to wages for PF, gratuity and other statutory payments.
Will my take-home salary go down?
It can, slightly, if your basic was below 50% and your employer pays PF on actual wages. Your PF savings and future gratuity go up by the same logic.
When did the Labour Codes come into force?
On 21 November 2025.
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