The government’s New Labour Code, enforced from 21 November 2025, has brought significant changes to how salaries in India are calculated. Under the revised Code on Wages, 2019, the definition of wages has been restructured, affecting employees across various sectors. The updated framework emphasises transparency, uniformity, and improved social security benefits for the workforce. With this, companies must now revise how they compute salary components, allowances, and benefits for their employees.

Under the new wage definition, an employee’s salary must include three key components:

• Basic Pay

• Dearness Allowance (DA)

• Retaining Allowance

These three together must constitute at least 50% of the employee’s Cost to Company (CTC). This marks a significant shift from earlier structures where employers often kept Basic Pay low and offered larger allowances to reduce contributions to provident fund (PF) and gratuity.

With the new rule, Basic Pay will now form a substantial portion of one’s salary. As a result, contributions towards PF, gratuity, and pension could rise, enhancing long-term retirement benefits. However, employees may experience a slight reduction in take-home pay because statutory deductions will now be made on a larger wage base.

One of the most notable changes under the New Labour Code is the treatment of employer-provided facilities. Many companies offer perks such as:

• Free meals

• Company-provided vehicles

• Subsidised housing

• Uniforms or protective gear

Under the new rules, the value of such benefits may also be added to the employee’s total wage. However, only up to 15% of the total salary can consist of these non-cash perks. Anything beyond this limit will not be considered part of the wage.

This ensures employers cannot excessively inflate salary structure through benefits to reduce contributions toward statutory funds.

While the new definition expands what forms part of the salary, it clearly excludes certain payments. The following components will not be counted as wages:

• House Rent Allowance (HRA)

• Travel Allowance

• Bonus

• Overtime payments

• Commission

• Employer’s PF contribution

• Gratuity

• Value of housing, electricity, water, or medical facilities

• Retirement benefits or ex-gratia payments

These exclusions help ensure there is a clear boundary between core wages and flexible components.

The most impactful change is the compulsory requirement that Basic Pay + DA + Retaining Allowance must make up at least half of the total CTC. If a company structures an employee’s salary in such a way that allowances exceed 50%, the excess amount will be automatically added back into wages. This prevents employers from bypassing PF and gratuity contributions through creative salary structuring.

If employers offer additional facilities—like meals, vehicles, or subsidised accommodation—their monetary value can be included in wages but only up to 15%. This cap ensures that non-cash benefits do not overshadow traditional wage components.

With the implementation of the New Labour Code, businesses will need to redesign their salary structures to remain compliant. For employees, the changes bring mixed outcomes:

• Higher PF and gratuity due to increased Basic Pay

• Better retirement security

• Possibly lower monthly take-home salary

• Greater transparency in wage calculation

Overall, the New Labour Code aims to strengthen employee welfare and create a more standardised salary ecosystem across the country.