India’s 4 Labour Codes came into force on 21 November 2025, consolidating 29 older laws into a unified framework. The biggest payslip change: your Basic Pay must now be at least 50% of your total CTC. For most private-sector employees, this raises PF deductions and long-term gratuity—while slightly reducing monthly take-home. Here is exactly what changed and what it means for you.
The first thing most employees notice is the payslip. Something looks different: the Basic Pay number is larger, a few allowances have shrunk, and the PF deduction has gone up. That is the most visible effect of India’s new Labour Codes—a rebalancing of how salary is structured, not an increase in total pay.
But the 4 Codes go well beyond payslips. They rewrite the rules on earned leave, gratuity eligibility, full-and-final settlement timelines, and—for the first time in Indian law—extend social security to gig and platform workers.
What Are the 4 Labour Codes, and Why Do They Exist?
The four codes consolidate 29 separate labour statutes—some written in the 1920s—into a single, updated framework:
- Code on Wages, 2019 — covers minimum wages, payment of wages, equal remuneration, and bonus
- Industrial Relations Code, 2020 — governs hire-and-fire rules, trade unions, strikes, and dispute resolution
- Code on Social Security, 2020 — consolidates PF, ESI, gratuity, maternity, and now adds gig workers
- Occupational Safety, Health and Working Conditions (OSH&WC) Code, 2020 — working hours, leave, safety obligations, and night-shift rules
The Ministry of Labour & Employment notified all four on 21 November 2025. Central Rules came into effect from 1 April 2026. Because labour is a concurrent subject under the Constitution, states set their own enforcement timelines.
The 50% Wage Rule: The Change That Hits Your Payslip First
Under the Code on Wages, the definition of “wages” now requires that Basic Pay + Dearness Allowance + Retaining Allowance = at least 50% of total CTC. Most Indian employers historically kept basic pay at 30–40% of CTC to minimise PF contributions. That structure is now non-compliant.
| Component | Old structure (₹50,000 CTC/month) | New structure (₹50,000 CTC/month) |
|---|---|---|
| Basic Pay | ₹15,000 (30%) | ₹25,000 (50%) |
| HRA | ₹12,000 | ₹10,000 |
| Special Allowance | ₹16,000 | ₹8,000 |
| PF contribution (employer) | ₹1,800 | ₹3,000 |
| PF contribution (employee) | ₹1,800 | ₹3,000 |
| Net take-home | ~₹32,400 | ~₹31,000 |
The total CTC does not change. The distribution does. Your take-home dips by roughly ₹1,000–2,500 per month, because more goes into your PF account—which grows at 8.25% per annum and is returned to you when you leave or retire.
Who is unaffected? If your Basic Pay is already at or above 50% of CTC, nothing changes. Government employees and PSUs have always structured salary this way.
PF and Gratuity: What You Gain in the Long Run
With Basic now at 50% of CTC instead of 30–35%, your monthly PF deposit (12% of Basic from you + 12% from employer) is roughly 1.5× what it was. Over a 10-year career at ₹60,000 CTC/month, the difference is an additional ₹6–8 lakh in PF savings at withdrawal.
Gratuity is calculated as 15/26 × Basic Pay × years of service. A higher Basic Pay directly increases your gratuity payout. A mid-career employee at ₹25,000 Basic who completes 5 years receives ₹72,115 in gratuity; at the old ₹15,000 Basic, they received ₹43,269—a ₹28,846 difference from the same 5 years of work.
Earned Leave: The 180-Day Rule and What You Can Carry Forward
Two meaningful changes under the OSH&WC Code:
Lower threshold to earn leave. You now qualify for earned leave after completing 180 days of work in a calendar year, down from 240 days under the old Factories Act regime. This matters most for employees who join mid-year or take unpaid leave.
Carry-forward capped at 30 days. Employees can carry forward a maximum of 30 earned leave days to the next year. Leave beyond 30 days that goes unused can be encashed. Leave that was refused by the employer cannot be forfeited—it must be carried forward without cap until it can be taken or encashed.
Gratuity for Fixed-Term and Contract Workers: The 5-Year Rule Is Gone
Under the old Payment of Gratuity Act, you had to complete five continuous years of service to receive any gratuity. The Code on Social Security changes this: fixed-term employees are now entitled to pro-rata gratuity after completing one year of service.
A worker on a 2-year contract at ₹30,000 Basic who completes 24 months receives: 15/26 × ₹30,000 × 2 years = ₹34,615 in gratuity. Employers hiring on fixed terms need to budget for this liability from day one.
Full-and-Final Settlement: 2 Working Days, Not 30–45
The Industrial Relations Code mandates that an employer must settle all wages on separation—salary, leave encashment, and other dues—within two working days of the effective date of resignation, dismissal, retrenchment, or retirement.
Most employers previously took 30–45 days for FnF. The 2-day rule is strict. If your FnF is delayed, keep records of your resignation acceptance, last working day, and any written communication—you have grounds to file a complaint under the Code.
Gig and Platform Workers: Social Security for the First Time
The Code on Social Security formally recognises gig and platform workers—ride-hailing drivers, delivery executives, freelancers on digital platforms—as entitled to social security benefits. The 2026 Union Budget allocated ₹500 crore as seed funding for the Gig Workers Welfare Fund.
If you earn income through a platform, watch the Ministry of Labour’s portal (labour.gov.in) for your registration window. Registration is the first step to accessing scheme benefits, with health and accident cover schemes expected by Q4 2026.
For Employers: Key Compliance Actions
Immediate (if not yet done): Audit payslip structure against the 50% wage rule; restructure where Basic is below 50% of CTC. Update payroll software for revised PF calculations. Revise standing orders for the 180-day earned leave threshold and 30-day carry-forward cap. Streamline clearance approvals for 2-day FnF settlement.
Q3–4 2026: Register fixed-term employees with 1-year gratuity trigger dates. Register gig workers if your business category is notified. Night-shift assignments for women require explicit written consent plus documented safety and transport arrangements. Employers who have not restructured face fines starting at ₹50,000 under the respective Code’s enforcement provisions.
Frequently Asked Questions
Will my take-home salary definitely go down?
Only if your Basic Pay was below 50% of CTC. Monthly take-home falls by the additional PF deduction—typically ₹1,000–3,000. Total CTC is unchanged.
Does the new Code apply to companies with fewer than 10 employees?
Many provisions apply to 10+ workers. The Code on Wages minimum-wage floor applies regardless of size. Check your state gazette for specifics.
I’m on a 2-year contract. Do I get gratuity?
Yes—pro-rata gratuity kicks in after one year under the Code on Social Security.
Can my employer refuse earned leave?
They can defer it, but cannot forfeit it. Refused leave carries forward without cap.
What is the penalty for delayed FnF settlement?
Fines of ₹50,000–2 lakh under the Industrial Relations Code; imprisonment for repeat offences.
When will gig workers receive benefits?
Legal recognition from 1 April 2026; health and accident schemes expected Q4 2026. Register on labour.gov.in.
The 4 Labour Codes represent India’s most comprehensive labour law reform in a century. For most salaried employees, the immediate effect is a payslip restructure; the medium-term payoff is meaningfully higher PF and gratuity. For contract and gig workers, it is the first time the law formally recognises them as beneficiaries.
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Related reading on ePeopleIndia:
How EPF and UAN contributions work under the new Labour Codes · Leave entitlements under the Labour Codes 2026 · How your salary slip components will change
