The central government on Friday announced a major decision for workers across the country. It has officially notified the implementation of all four new labour codes, which will come into effect from 21 November 2025. These codes aim to simplify existing labour laws and ensure better wages, safety, social security, and welfare for workers.
These four labour codes are:
- Code on Wages (2019)
- Industrial Relations Code (2020)
- Code on Social Security (2020)
- Occupational Safety, Health and Working Conditions Code (2020)
Together, they will replace 29 old labour laws and bring India’s labour system in line with modern global standards. One of the biggest impacts of these changes will be a major shift in how salaries are structured.
What changes for employees compared to earlier
Earlier, companies could keep basic pay low and give a large portion of the salary through allowances. This meant lower PF and gratuity contributions.
Now, with the rule that basic salary cannot be less than 50% of CTC, companies will no longer be able to avoid paying higher retirement benefits.
As a result:
- Your monthly take-home salary may reduce,
- But your long-term savings and retirement benefits will grow significantly.
This makes the rule a positive step for long-term financial security, even if employees feel a small impact on their monthly income.
How the new wage definition is different from the old system
The government has already notified this rule, and the detailed guidelines are expected within the next 45 days. Once those are issued, all companies will be required to modify their salary structures to comply with the new law. This rule has been introduced to prevent companies from deliberately keeping the basic salary very low and increasing allowances to reduce their PF and gratuity liability. Since PF is deducted at 12% of basic pay and gratuity is based on the last drawn basic salary, companies previously benefitted from paying employees through allowances. The new definition of wages closes this loophole.
Earlier, companies would often structure salaries in a way that kept basic pay low and divided the rest into various allowances. This helped reduce PF and gratuity contributions but left employees with lower long-term savings. With the new rules, at least half of the salary must be basic pay, which means retirement savings will automatically increase. Employees may notice a slight dip in their monthly salary, but it comes with the advantage of a stronger financial safety net for the future. Even though it may feel like an extra burden now, the new rules are ultimately designed to strengthen workers’ long-term financial security.