Key Changes to Wage Compliance

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With effect from 21 November 2025, the Government of India has operationalised the four Labour Codes, replacing 29 legacy labour laws.

Key Legal Changes with respect to Wages

  1. Wage Definition & Salary Structuring (Code on Wages, 2019)
  • Statutory Change (Sec. 2(y))
    Wages are now defined as: Basic Pay + Dearness Allowance + Retaining Allowance

50% Rule - Allowances cannot exceed 50% of CTC. Means align wages, which are equal to at least 50% of CTC. Exclusions (not counted within 50% cap): HRA, Overtime, Travelling allowance and Statutory bonus, etc.

Compliance Impact: If Wages < 50% of CTC → automatic reclassification

Impact of Wages Realignment- This increases:

  • Provident Fund (PF)
  • Gratuity
  • Bonus liability

Earlier, many companies structured salaries so that allowances made up a large proportion of CTC. Now, all the calculations of PF, Gratuity and Bonus will be based on this new wage definition.

Current Risk: Most companies follow a low basic + high allowance model, which is now non-compliant and requires restructuring.

  • Clearance of all dues Sec 17

All dues must be paid within 2 working days of: Retrenchment, Dismissal and Termination

  • No discrimination in wages(Sec. 3&4) of code on wages Act- Every male and female should get equal wages for same amount/nature of work.
  • Minimum Wages- Will be notified by the appropriate govt. under Sec.5 &6 of the Code on Wages. Must pay minimum wages.
  • Overtime- The overtime rate, which shall not be less than twice the normal rate of wages(Sec. 14 of Code on Wages).

Note- All the benefits like PF, Gratuity, Bonus, etc. will be based on this new definition of Wages. Also, even fixed-term employees are eligible for gratuity on a pro rata basis under S.56 of Code on Social Security 2020