Concerns Over Salary Changes Amid New Labour Codes

Many salaried workers in India are currently pondering a pressing question: Will my monthly salary be affected by the new labour codes? As the government gears up to roll out this new labour framework, worries regarding potential alterations in salary structures and Provident Fund contributions have surged among employees.

The Indian government has now provided clarity on several critical elements of the proposed reforms. The new labour legislation consolidates 29 existing labour laws into four primary codes — namely the Code on Wages, Code on Social Security, Code on Industrial Relations, and Code on Occupational Safety, Health and Working Conditions. These reforms are intended to enhance employee benefits and social security, but they might also influence salary configurations.

Key Change: 50% Basic Pay Requirement

A significant alteration introduced by the new labour codes pertains to the definition of “wages.”

According to the updated regulations, the combined total of basic salary and dearness allowance (DA) must constitute at least 50% of an employee’s overall salary package.

In the past, many organizations adopted different salary structures, often keeping the basic salary relatively low (around 25–30%) and allocating the remainder through various allowances such as House Rent Allowance (HRA), travel reimbursements, and other perks. This approach minimized Provident Fund contributions for both employers and employees, thereby increasing the employee’s take-home pay.

With the new definition of wages, if allowances surpass 50% of the total salary, the excess will automatically be classified as part of the basic pay component.

Effects on Provident Fund and Gratuity

Given that Provident Fund (PF) contributions are determined by basic salary, an increase in the basic pay component will lead to a rise in PF contributions.

This adjustment presents both benefits and drawbacks.

Positive Aspects

With elevated PF contributions, employees will build greater retirement savings in their EPF accounts. Furthermore, gratuity benefits, which are also tied to basic salary, will see an increase.

This implies that employees could accumulate a significantly larger retirement fund upon leaving their jobs or retiring.

Potential Drawbacks

On the downside, employees contribute 12% of their basic salary to the EPF each month. If the basic salary rises due to the new regulations, the monthly PF deduction will also increase.

Consequently, employees might experience a slight decrease in their monthly take-home salary.

Experts estimate that this could result in a difference of ₹1,000 to ₹3,000 per month, depending on individual salary structures.

Government's Clarification on ₹15,000 Wage Limit

In March 2026, the Ministry of Labour and Employment issued a crucial clarification in the Rajya Sabha concerning PF contributions.

The government confirmed that the statutory wage ceiling of ₹15,000 for EPF contributions will remain unchanged for the time being.

This clarification means:

• Employees earning a basic salary below ₹15,000 will be more directly impacted by these changes.


• For those whose basic salary already exceeds ₹15,000, contributions beyond this threshold will remain voluntary, unless both the employer and employee agree to contribute more.

This announcement has alleviated concerns among employees who feared significant changes in PF deductions.

Benefits for Fixed-Term Employees

Another significant aspect of the new labour codes is the advantage it provides to fixed-term employees (FTEs).

Under the current system, employees typically qualify for gratuity only after five years of continuous service.

However, the new labour regulations suggest that fixed-term employees will be eligible for gratuity benefits after just one year of service, calculated on a pro-rata basis.

For regular full-time employees, the five-year requirement for gratuity eligibility will remain unchanged.

Short-Term Adjustments for Long-Term Gains

Experts indicate that while employees may initially observe a minor decline in their monthly take-home salary, this change is intended to enhance long-term financial security.

Increased contributions to EPF and gratuity funds will lead to a larger retirement savings pool, which can offer improved financial stability in later years.

In essence, the reform may feel like a short-term sacrifice for a more secure financial future.

Timeline for Implementation

Numerous companies have already begun updating their payroll systems to comply with the new wage definitions and contribution structures.

Many organizations are expected to adopt the revised salary framework once the labour codes are fully enforced, with April 1, 2026 being discussed as a potential implementation date across various sectors.

Employees are encouraged to review their salary structures and comprehend how these changes might influence their monthly earnings and long-term savings.