The effect of the long awaited labor reform is now clearly visible on the salaries of the employees. After the implementation of the new wage definition, companies are making changes in their salary structure. At the same time, employees are trying to understand what effect this will have on their take-home salary and future savings. At the heart of this entire change is the 50 percent rule, which affects the distribution of salary and calculation of benefits like PF-gratuity.
The new wage definition has now come into effect.
The four Labor Codes Code on Wages, Industrial Relations Code, Code on Social Security and Occupational Safety, Health and Working Conditions Code have come into force from November 21, 2025, while their draft rules were released in December. The biggest change is the implementation of uniform wage definition. According to experts, with the implementation of this definition, the gratuity of employees leaving the job on or after November 21, 2025, will be decided on this basis.
The direct effect of this change is that now more parts of the salary will be included in the wage and only a few components will be kept out. This will increase the basis of calculation of gratuity and employees can get more payment. Also, now fixed-term employees will also be entitled to gratuity after at least one year of service.
What is 50% wage rule?
The most discussed issue is the 50 percent salary rule. Contrary to popular belief, this rule does not force companies to fix the salary structure, rather it defines salary for statutory calculations like PF, ESI, gratuity and bonus. According to this rule, at least 50% of the total salary of an employee should be in the form of basic pay and dearness allowance (DA). That means the share of allowance will decrease and the basic salary will increase.
Balasubramaniam A, Senior Vice President, TeamLease Services, said that according to the 50 percent salary rule under the new Labor Code, basic pay and dearness allowance (DA) should be at least 50 percent of the total salary. This increases the contribution towards PF and gratuity, while the take-home salary may reduce slightly. The government has also clarified that it is not necessary to include variable pay and stock benefits while determining the total remuneration. Although the FAQs state that the salary should be limited to 50%, it has not been made directly binding in law.
What will be the impact on take-home salary?
The biggest impact of this change may be on the in-hand salary of the employees. With the increase in basic salary, PF and other deductions will also increase, due to which the take-home salary may reduce slightly. However, its benefits will be felt in the long run. Higher PF contribution will mean bigger retirement fund and higher gratuity. That means a little less salary now, but better financial security for the future.
Are companies ready?
Right now most of the companies are in the process of adopting this new system. Not only do they have to change the salary structure, but they also have to update the HR and payroll systems. Big corporates have taken rapid steps in this direction, but many companies are still busy implementing the changes. Adherence to rules, cost balancing and proper communication with employees are playing a very important role in this entire process.
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