The new Labour Codes and your salary: PF, gratuity and in-hand pay

If your payslip changed sometime after November 2025 (basic went up, in-hand went down, PF went up), you have met the Labour Codes. India replaced 29 central labour laws with four codes, on wages, industrial relations, social security, and occupational safety and health, and they came into force on 21 November 2025. In September 2026 the government also raised the wage ceiling for compulsory PF.

Most of what was written at the time was for HR teams. This piece is for the person reading the payslip: what changed, why your in-hand may have dropped, why that isn't all bad news, and what to check on your next offer.

The one change that moves your payslip: the 50% wage rule

Every code now uses one definition of "wages": broadly basic pay, dearness allowance and retaining allowance. Many other items are excluded, such as HRA, conveyance, overtime, bonuses, commission and the employer's PF contribution. But there is a cap. If the excluded items add up to more than half of your total pay, the amount above 50% is counted back into wages.

Why it matters: PF, gratuity and some other benefits are calculated on "wages". For years, many companies kept basic pay low (25% to 35% of CTC was common) and loaded the rest into allowances, which kept PF and gratuity costs down and in-hand pay up. The 50% rule ends that, at least for the purpose of these benefits.

A worked example

Here is an illustration with round numbers, not anyone's actual payslip. Take someone with a monthly gross of ₹50,000:

So in-hand falls by ₹1,200 a month in this example, but ₹2,400 more goes into your PF every month (yours plus the employer's), and the gratuity base rises from ₹15,000 to ₹25,000. Whether the employer's extra PF comes out of your CTC depends on how the company built your CTC; most Indian CTCs include employer PF, which is why in-hand often drops.

If your structure already had basic at half of gross, very little changes for you.

PF: the new ₹25,000 ceiling

Employees' Provident Fund is 12% of wages from you and a matching contribution from the employer (part of which goes to the pension scheme). Until September 2026, PF was compulsory only for employees whose wages were up to ₹15,000 a month, a limit set in 2014; people above it could be enrolled at the employer's choice.

The Labour Ministry raised that ceiling to ₹25,000 a month with effect from 17 September 2026. What it means in practice:

• If your wages are up to ₹25,000 a month, PF is now compulsory for you.
• Many employers calculate PF on wages up to the ceiling only, so someone on ₹40,000 wages might see PF on ₹25,000. Others contribute on full wages. Your offer letter or HR policy says which.
• Check your PF passbook on the EPFO site with your UAN every few months. Contributions that are deducted but not deposited are a red flag.

ESI is separate. It still applies only if your gross is ₹21,000 a month or less; employees pay 0.75% and the employer 3.25%, and it gives you and your family medical cover.

Gratuity: one year for fixed-term staff

Gratuity is a lump sum paid when you leave, worked out as 15 days' wages for every completed year of service (using 26 working days in a month, so last wages × 15 ÷ 26 × years).

• Permanent employees still generally qualify after five years of continuous service (with exceptions for death or disablement).
• Fixed-term employees, people hired directly by the employer on a contract for a set period, now qualify after one year, on a pro-rata basis. That's a real gain for project, seasonal and contract roles that are on the company's own rolls.
• Because the 50% rule raises "wages", gratuity amounts rise too.

Note the difference between fixed-term employees and contract labour placed by a staffing firm: the one-year gratuity rule is for fixed-term employment with the employer itself. If you're on an agency's payroll, read our guide to contract jobs through agencies.

When you leave: final wages in two working days

The Code on Wages says that when an employee resigns, is removed, dismissed or retrenched, the wages due must be paid within two working days. Before the codes, many companies took 30 to 45 days for full and final settlement. Other parts of the settlement, such as gratuity, follow their own timelines, so ask HR exactly what will be paid when.

Hours and overtime

The codes cap normal working hours at 8 a day and 48 a week, with spread-over and shift rules set by the governments, and require overtime to be paid at twice the ordinary rate of wages. States make rules on details like shop hours and night work for women, so practice varies. If your job regularly runs over, keep your own record of hours.

What hasn't changed, and what's still settling

• Your CTC isn't supposed to fall. The codes change how pay is split and what benefits are calculated on, not the total.
• Income tax works as before through your employer's TDS; PF contributions and gratuity are taxed under their own rules.
• Rules are still being finalised in places. The central government pre-published draft rules on 30 December 2025, and each state frames its own rules for matters in its domain. Check the Labour Ministry's site and your state's notifications before relying on a specific number for your situation.

What to check on your next offer or payslip

Our offer letter checklist covers the rest of the offer, and the salary negotiation guide helps if the new structure leaves your in-hand lower than you can accept.