Key Changes to Wage Compliance

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

Statutory Change (Section 2(y))
Under the new legislation, wages are now defined strictly as:

The 50% Rule:
Allowances cannot exceed 50% of the Cost to Company (CTC). Consequently, basic pay must be aligned such that it constitutes at least 50% of the CTC. The following items are excluded from this 50% cap:

Compliance Impact:
If current wages fall below 50% of the CTC, automatic reclassification is required. This realignment will increase liabilities in the following areas:

All dues must be paid within two working days following:

Every male and female employee must receive equal wages for the same amount or nature of work.

Minimum wage rates will be notified by the appropriate government authority. Employers are mandated to pay these minimum wages without exception.

The overtime rate shall not be less than twice the normal rate of wages.

Important Note:
All benefits, including Provident Fund, Gratuity, and Bonus, will be calculated based on this new definition of wages. Furthermore, even fixed-term employees are eligible for gratuity on a pro rata basis under Section 56 of the Code on Social Security, 2020.