How Employers Must Restructure Salary Under the New Labour Code
By Varun M
For HR and payroll teams: the new labour code's 50% wage rule means every salary structure needs a check, not just the ones that "feel" low on Basic. Here's what to look for, and where the real cost usually shows up — which often isn't where you'd expect.
New Labour Code Salary Calculator
Model any employee's CTC and Basic to check compliance.
The short answer
For every employee, check whether Basic + DA + retaining allowance equals at least 50% of total remuneration. Where it doesn't, the wage figure used for PF and gratuity calculations must be topped up to that 50% floor — even if the employee's CTC and pay structure aren't formally renegotiated.
How it's calculated
A ₹12,00,000 annual CTC (₹1,00,000/month), with Basic + DA structured at 20% of CTC (₹20,000/month) — a common lean structure for mid-level roles:
| Before | After | |
|---|---|---|
| Wages (Basic + DA) | ₹20,000 | ₹50,000 |
| Employee / Employer PF | ₹1,800 each | ₹1,800 each (unchanged) |
| Gratuity base | ₹20,000 | ₹50,000 (+150%) |
Notice what didn't move: PF stays flat, because ₹20,000 was already above the ₹15,000 ceiling. What did move, dramatically, is the gratuity base — up two and a half times. For a workforce with many employees in this situation, that's a meaningful jump in accrued gratuity liability, even with zero change to payroll cost today.
The compliance checklist
- For each pay band, calculate Basic + DA as a percentage of total remuneration.
- Flag any structure where that percentage is below 50%.
- Recalculate the statutory wage figure for PF and gratuity purposes using the 50% floor.
- Check whether the new wage figure crosses the ₹15,000/month PF ceiling — see the new wage code PF impact for when this changes payroll cost.
- Recalculate accrued gratuity liability using the new wage base, even where PF is unaffected.
Where the real cost usually is
It's tempting to focus on payroll cost (PF), since that's the recurring monthly number. But as this example shows, PF often doesn't move at all, while gratuity liability — a balance-sheet number, not a monthly payroll line — can jump significantly. See Basic salary vs CTC under the new labour code for how this varies across CTC bands, and the gratuity calculator to model your own workforce numbers.
More for employers
- Gratuity liability for fixed-term employees — the wage floor above hits fixed-term hires on a 1-year timeline, not 5.
- Fixed-term employment contract rules — the parity obligation, and the early-termination trap.
- Which labour code obligations apply at what headcount — five different thresholds, not one.
- Payslip and wage payment rules — the operational obligations that apply from your first employee, no threshold involved.
FAQ
For every employee, whether Basic + DA + retaining allowance equals at least 50% of total remuneration. Where it doesn't, the wage figure used for PF and gratuity calculations must be topped up to that 50% floor, even if the employee's CTC and pay structure aren't formally changed.
Sometimes, but not always — it depends on whether the new wage figure crosses the ₹15,000/month PF ceiling for that employee. Where it doesn't (common at mid-to-high CTC levels), PF cost is unchanged. What does increase, for almost every affected employee, is the accrued gratuity liability, since gratuity has no such ceiling.
Ongoing — the 50% check applies to every salary structure and every revision going forward, not just a one-time transition adjustment when the codes took effect.
This depends on how your organisation implements the change and is a compliance/legal question outside what this calculator covers — confirm the correct process with legal or HR compliance counsel.
Run representative CTC bands and Basic ratios through the New Labour Code Salary Calculator to see where PF and gratuity bases actually shift — the effect varies a lot by CTC level and current structuring, as shown in the Basic vs CTC comparison.
Last verified: 11 Aug 2026
Sources: Code on Wages, 2019; EPF & MP Act 1952 / EPFO (PF wage ceiling); Ministry of Labour & Employment FAQ (Mar 2026).
This is an indicative estimate based on the New Labour Code's wage rules as understood at the time of writing. It does not model income tax, the EPS/EPF split, or company-specific pay structures, and the final Central Rules implementing these provisions were not yet notified as of this verification date. This is not legal or compliance advice — confirm your organisation's obligations with legal or HR compliance counsel.