How new labor codes are impacting employee salaries
What's the story
The new labor codes, which came into effect on November 21, 2025, are already impacting salary structures. The major change is the introduction of a uniform definition of wages. This definition is applicable even as some rules are still being finalized. It mandates employers to calculate gratuity based on this revised definition for employees leaving on or after November 21, 2025.
Wage impact
Wider definition of wages
The new wage definition includes a wider range of salary components with limited exclusions. This means higher gratuity payouts for companies as the base for calculation has expanded, impacting an employee's entire service period. The new framework also widens eligibility by including fixed-term employees who complete at least one year of service within the ambit of gratuity benefits.
Salary restructuring
Impact on salary structure
The 50% wage rule under the new labor codes mandates that basic pay and dearness allowance (DA) together should account for at least 50% of an employee's total salary. This changes the salary structure by reducing allowances and increasing basic wages. Balasubramanian A, Senior Vice President at TeamLease Services, said this could increase EPF and gratuity contributions while slightly lowering take-home pay if overall CTC remains unchanged.
Remuneration guidelines
Government clarifications on wage computation
The government has clarified that variable pay and stock-linked benefits need not be included when calculating total remuneration. It has also issued FAQs to clarify how wages are computed. Bharech said while the intent seems to restrict wages to 50% of remuneration, this hasn't been incorporated in the law itself.
Employee effects
Reduction in take-home salary for employees
The biggest visible change for employees could be a reduction in take-home salary. As basic pay rises to meet the 50% threshold, contributions toward PF and other statutory benefits are likely to increase. While this may reduce monthly income, it could strengthen long-term savings with a larger retirement corpus and increased gratuity payouts due to a higher wage base.
Cost implications
For employers, the change could increase overall costs
For employers, the change could increase overall costs and prompt a review of compensation structures to balance compliance and cost efficiency. Most companies are still aligning their systems with the new rules, which involves revising salary structures and updating HR/payroll systems to compute wages correctly under this new definition. Saikiran Murali, Founder of Workline, said many organizations are still adapting to this new structure.