RESHAPING CORPORATE SALARIES AND SOCIAL SECURITY
India’s new labour codes, effective from late 2025, redefine “wages” to reshape corporate salary structures. This primarily affects take-home pay through higher mandatory contributions to provident fund (PF) and gratuity.
Wage Definition Shift
Basic salary must now form at least 50% of total CTC (cost-to-company), up from typical lower shares loaded with allowances.
Allowances like HRA and conveyance are excluded from wages, but their share cannot exceed 50% total salary.
Employers cannot reduce total CTC solely due to these rules, but restructuring shifts more into taxable, deduction-prone basic pay.
Impact on Take-Home Pay
PF (12% each from employee/employer) and gratuity (based on last-drawn wages) will rise as they’re calculated on broader “wages.”
Employees may see 5-15% drop in net pay initially, varying by company adjustments; some firms might offset by hiking CTC.
Fixed-term workers get gratuity after one year, adding employer costs that could indirectly pressure salary hikes.
Corporate Adjustments
Companies face higher compliance costs (e.g., 3% profit hit reported in Q3 FY2026), prompting salary recalibration.
Bonus applies up to ₹21,000/month until revised; overtime doubles regular rate for all up to ₹24,000/month earners.
HR must align structures without cutting benefits, boosting long-term social security over immediate cash.
India’s New Labour Codes, implemented in 2025, consolidate 29 older laws into four streamlined frameworks: the Code on Wages, Industrial Relations Code, Code on Social Security, and Occupational Safety, Health and Working Conditions Code. These reforms aim to modernize labour regulations, benefiting employees through enhanced protections while prompting salary restructures for compliance. They expand coverage, ensure fairer pay calculations, and boost long-term financial security, though take-home pay may dip short-term due to higher deductions.
Key Employee Advantages
The codes deliver tangible gains in social security, inclusivity, and workplace rights.
- Broader worker definition now explicitly includes gig/platform workers, inter-state migrants, construction workers, journalists in electronic media, stunt professionals, and dubbing artists, granting them access to minimum wages, overtime pay, leaves, and accident compensation previously denied.
- Fixed-term employees (FTEs) qualify for gratuity after just one year (versus five years before), pro-rata benefits matching permanents, and equal pay for equal work, reducing exploitation in temporary roles.
- Gig and platform workers gain formal recognition with aggregator-funded social security, including identity cards, portable Aadhaar-linked benefits like insurance, pensions, and maternity coverage.
- Mandatory appointment letters clarify terms, working hours (max 8/day, 48/week), overtime (double pay), and leaves (up to 240 days maternity for women), curbing ambiguity and disputes.
- Free annual health check-ups for workers over 40, improved facilities like creches and restrooms, and uniform safety standards protect health, especially for contract and migrant labour.]
These changes foster stability, especially for India’s 90% unorganized workforce, by formalizing protections and reducing vulnerability.
Wage Protection Enhancements
Timely payments and a unified wage definition prevent employer manipulations.
The “wages” now include all components exceeding 50% of total pay (basic + dearness + retaining allowances), barring HRA, conveyance, and bonuses. This curbs artificial low basic pay structures that minimized employer PF/gratuity contributions, ensuring employees get rightful social benefits.
- Minimum wages set nationally with a floor wage, applied uniformly to avoid exploitation in low-skill sectors.]
- Timely salary disbursement mandated (within 7-10 days for wages under Rs 50,000), with penalties for delays.
- Overtime for all workers (not just factories) at double rates, boosting earnings for extra hours.
Employees see stronger financial safeguards, as contributions to PF, ESI, and gratuity rise proportionally.
Social Security Expansion
Coverage widens dramatically, prioritizing retirement and health.
- Gratuity eligibility extends to FTEs after one year; calculation base increases (50%+ CTC), potentially raising payouts by 67% for many.
- PF contributions apply on higher wage base, enhancing retirement corpus (e.g., new hires capped at Rs 1,800/month initially for affordability).
- Maternity benefits up to 9 months (240 days), with creche mandates for 50+ employee firms; paternity leave formalized.
- Unorganized workers get life/health insurance, disability benefits via e-Shram portal.
This shift builds long-term wealth, with digital portability ensuring seamless benefit access across jobs.
Salary Restructure Impacts
Employers must raise CTC to meet the 50% basic wage floor, affecting take-home and deductions.
Pre- vs Post-Code Structures
| Aspect | Old Structure (Common) | New Compliant Structure | Employee Impact |
| Basic Pay | 20-30% of CTC | ≥50% of CTC (incl. DA, retaining) | Higher PF/Gratuity base; lower take-home initially |
| Allowances (HRA, etc.) | 70-80% (exempted) | ≤50% | Reduced tax-free perks; more taxable income |
| PF Contribution (12% each) | On low basic (~Rs 5k-10k) | On higher base (e.g., Rs 25k+ for Rs 7L CTC) | Deduction rises (e.g., Rs 3k to Rs 6k/month); corpus grows 2x faster] |
| Gratuity (15 days pay/year) | Low base | 67% higher payout | Retirement boost offsets short-term hit |
| Example: Rs 7L CTC | Basic Rs 15k, Allow Rs 4.5L | Basic Rs 3.5L, Allow Rs 3.5L | Take-home drops ~10-15%; benefits up 30-50% |
For a Rs 7 lakh CTC employee: Old take-home ~Rs 48k/month (low PF Rs 3.6k). New: Basic Rs 35k, PF Rs 8.4k deducted, take-home ~Rs 43k, but gratuity/PF double over 5 years. Higher earners (Rs 15L CTC) see similar ratios, with Rs 10-20k monthly dip traded for Rs 10-15L extra retirement funds.
Long-term: Salary transparency rises; bonus/leave encashment on broader base. Short-term pain (5-15% take-home cut) yields gains via compounded benefits.
Workplace Rights and Safety
Safer, fairer environments reduce attrition and health risks.
Contract labour restricted for core activities, mandating permanency or equal benefits (gratuity after 1 year, health checks). Women gain night-shift protections with transport/safety; inter-state migrants get home-state wages. Digital compliance cuts disputes via single returns/registrations.
Broader Economic Effects
Formalization could cover 40 crore more workers, spurring consumption via better security. Reduced attrition (via trust) saves firms 20-30% hiring costs, indirectly aiding raises. Challenges: Small firms face compliance hikes (5-10% payroll costs), possibly slowing hikes short-term.
Transition Roadmap
Phased rollout (2025-26) allows restructuring; tools like salary calculators aid planning. Employees should demand compliant offers; unions negotiate offsets like performance bonuses.
Overall, the codes prioritize security over immediate cash, aligning India with global standards for a resilient workforce.
