The new labour codes have generated a discussion around how they will affect the salary structures of employees. A crucial element for employees to comprehend is that Cost to Company (CTC) is essentially a concept created by human resources. Labour laws, however, operate based on remuneration, wages, and the statutory bases pertaining to deductions and terminal benefits. As such, the focus should not solely be on whether employers will report a ‘basic salary’ as being 50 per cent of the total. Instead, attention must be directed toward which bases will be utilised for computations linked to Provident Fund (PF), gratuity, and bonuses.

Section 2(y) of the Code on Wages indicates that the 50 per cent rule is triggered when payments made by the employer exceed half of the total remuneration. Any excess amount is then included in the wage calculations. For example, if an employer maintains the basic salary at 40 per cent, this does not inherently mean that gratuity and bonus calculations will likewise be based on this 40 per cent. Depending on the structural arrangement, components outside of the wages may need to be considered for these calculations.

It is important to note that PF should be viewed distinctly from other salary components. The Employees’ Provident Fund Organisation (EPFO) continues to manage PF based on existing structures, including basic wages, dearness allowance, and a retained allowance, with the conventional 12 per cent contribution. Therefore, PF exists as its own category, even amid discussions surrounding broader salary definitions.

Effects on Take-Home Pay and Benefits

The primary practical changes following the implementation of the new labour codes for employees in the Rs 8–15 lakh CTC range primarily alter the balance between immediate cash and deferred benefits. If the PF-related base salary increases, the employee’s contribution to the PF will rise correspondingly, leading to a decrease in take-home salary. For instance, an increase in the PF wage base from Rs 40,000 to Rs 50,000 results in the employee’s deduction rising from Rs 4,800 to Rs 6,000 per month, which is also matched by an increase in the employer’s contribution.

In practical terms, while this may lead to visible monthly cash reductions, many employees in white-collar roles may experience only modest decreases in take-home pay, typically ranging between Rs 1,000 and Rs 3,000. This variation depends on whether PF is calculated on capped or actual wages, and whether the total CTC remains unchanged.

Should higher wage contributions apply, the impact on take-home pay becomes markedly more evident. Furthermore, an increase in the last drawn wage base will enhance gratuity amounts, although these benefits may not be immediately apparent in monthly cash flows.

Who Benefits From Revisions to Gratuity Rules?

The revisions to gratuity provisions mainly benefit fixed-term employees. According to a clarification issued in March 2026, these employees are now eligible for gratuity following one year of service under their contracts. This represents a notable change for those in shorter-term roles, who previously may not have accrued substantial gratuity benefits.

Additionally, longer-tenured employees with salary structures that include significant allowances are likely to benefit as a stronger wage base enhances the accrued gratuity over time. Conversely, those frequently switching jobs, or whose employers continue to restrict PF contributions to existing ceilings, may find minimal change in their circumstances, thereby making the benefits not universally applicable.

To maximise advantages from these changes, employees should critically assess their wage structures and contributions. Engaging with four key questions regarding wage bases, contributions, and overall benefit calculations will assist in navigating the evolving landscape defined by the new labour codes.

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