India's four Labour Codes received Presidential assent between 2019 and 2020, with implementation beginning in earnest through 2025. As of 2026, states including Himachal Pradesh, Haryana, Uttarakhand, Madhya Pradesh, and several others have issued notifications, with many states having notified their rules effective November 2025. Under the Code on Wages, basic pay plus dearness allowance must now equal at least 50% of an employee's total CTC. This fundamental change is driving significant payroll restructuring conversations across Indian companies, as the previous structure of basic salary at 20-30% of CTC with allowances padding the rest is now non-compliant.
The wage code implementation creates a significant shift in employee take-home pay. A typical pre-wage-code salary structure for an employee on ₹1,00,000 per month CTC looked like this: Basic Salary ₹30,000 (30%), Special Allowance ₹40,000 (40%), Conveyance Allowance ₹5,000 (5%), Employer PF Contribution ₹3,600 (3.6%), and Gratuity Provision ₹1,442 (1.4%). Employee take-home was approximately ₹79,000–₹81,000 per month. With basic salary required to be at least 50% of CTC, the same structure changes significantly to: Basic Salary ₹50,000 (50%), Special Allowance ₹21,638 (21.6%), Conveyance Allowance ₹5,000 (5%), Employer PF Contribution ₹6,000 (6%), and Gratuity Provision ₹2,404 (2.4%). Employee take-home now approximates ₹74,000–₹76,000 per month, representing a ₹3,000 to ₹6,000 per month decrease for mid-level employees depending on their current salary structure.
The wage code changes significantly impact employer costs and employee benefits. EPF is calculated as 12% of basic salary from both employer and employee, meaning higher basic salary results in ₹28.8 lakh in additional PF outgo per year for a company with 100 employees at this salary level. Gratuity is calculated based on the last drawn basic salary, with higher basic meaning a ₹57,693 difference in gratuity payout for a single employee over just five years of service. The Social Security Code also proposes reducing gratuity eligibility for fixed-term employees from 5 years to 1 year of continuous service, significantly expanding gratuity liability for companies relying heavily on contract hiring. Employers must recalculate PF and gratuity provisions before each payroll run and update offer letter templates to reflect compliant structures.
HR teams are implementing comprehensive communication strategies to address employee concerns about reduced take-home pay. Companies are conducting salary audits to identify all employees whose basic is below 50% of CTC and restructuring component splits globally through payroll software templates. Employees are being informed about the long-term benefits of higher PF balance building and larger gratuity cheques when they eventually leave. The Code on Wages covers minimum wages, timely payment, and the definition of 'wages' itself, while the Social Security Code consolidates EPF, ESI, gratuity, and maternity benefits. Non-compliance can attract penalties including fines and potential prosecution, with incorrect PF contributions creating liability with EPFO and non-compliant payslips triggering audits.
