new labor code 2025
If your CTC (Cost To Company) is between ₹ 7 lakh to ₹ 15 lakh, then this news is very important for you. The new Labor Code, notified on 21 November 2025, has made a major change in the salary structure of employees. This initiative of the Central Government, on one hand, will strengthen the future security i.e. gratuity and pension base for the employees, while on the other hand, there may be a reduction in the ‘in-hand’ salary i.e. net take-home salary received every month. Simply put, your gross salary will not change, but the mathematics of the way money comes into your bank account will definitely change.
Experts say that the new rules mainly bring about the definition of ‘wages’. The government has clarified that now the ‘wages’ consisting of Basic Pay, Dearness Allowance (DA), and Retaining Allowance should be at least 50% of the total compensation. If till now your company was keeping these components less than 50%, then now it will have to immediately change its salary structure. This change is going to have a direct impact on the calculation of your PF and Gratuity.
Why may your monthly salary decrease?
In the old system, companies often kept the allowances portion of the salary higher and the basic salary lower, so that there was less burden on PF and gratuity. But now, under the new code, if your allowances (like HRA, special allowance etc.) exceed 50% of your total salary, then the amount which crosses the 50% limit will be added to ‘wages’.
Also read- Double payment of overtime, this is how your life will change with the new labor code.
According to Deloitte India partner Divya Baweja and Soumya Kumar (Partner, Cyril Amarchand Mangaldas), this increase in the ‘wage’ base will increase the amount of contribution for PF and other social security schemes (ESI, Maternity Benefit). Since this increased amount will be deducted from your CTC, your net take-home salary will reduce.
For example, an employee whose CTC is ₹ 7 lakh and his basic salary is currently 40% (₹ 2,80,000). If the company reduces it to 50% (₹3,50,000) under the new rule, then see what the change will be.
| Description | Old (40% Basic) | New (50% Basic) |
| basic salary | ₹2,80,000 | ₹3,50,000 |
| PF Contribution (@12%) | ₹33,600 | ₹42,000 |
| Gratuity (@4.81%) | ₹13,468 | ₹16,835 |
| take-home salary | ₹6,52,932 | ₹6,41,165 |
Even at CTC of ₹7 lakh, the annual take-home salary is getting reduced to ₹11,767. Similarly, there will be a difference in the monthly salary of an employee with CTC of ₹ 15 lakh.
Retirement savings will be strong
Even though the salary coming every month may reduce a little, but this change has brought a big relief for you in the long run. Gratuity will now be calculated on a higher ‘wage’ basis, which means that at the time of leaving the job or retirement, you will get more gratuity than before.
According to Deloitte’s analysis, at a CTC of ₹10 lakh, the total gratuity amount for an employee with 7 years of service could increase from ₹1,34,610 to ₹2,41,460. This is an increase of approximately 80%. Apart from this, due to higher contribution in PF, your retirement corpus will also be bigger.
According to Vinay Joy, Partner, Khaitan & Company, gratuity payment is not a monthly deduction, hence it does not directly affect your monthly salary. This is a major change only for those employees whose monthly salary is less than ₹15,000, as the maximum limit for PF contribution is already capped for higher salaried employees.
There will be a big change in the salary structure
It is important to understand that the new code will not increase the CTC or total expenses of the employer. The total CTC will remain the same, only the internal allocation of its components will change. Experts Aloy Rajvi (Managing Partner, Accord Juris) and Divya Baweja believe that merely increasing the ‘Basic Salary’ by 50% will not work. The company will have to ensure that the ‘allowance’ portion does not exceed 50% of the total salary at any cost. If the allowances are more than 50%, it will be mandatory to add the difference amount to ‘wages’ for calculating PF, gratuity and social security benefits. To comply with this rule, all companies will soon have to review their compensation structure.