Paycheck Puzzle: How India’s New Labour Codes Reshape Take-Home Salary, PF & Gratuity

Updated: November 25, 2025 01:47

Image Source: Times Of India

India’s new labour codes, effective November 21, 2025, mandate that basic salary must form at least 50% of total CTC. This change could reduce take-home pay but will increase contributions to Provident Fund (PF) and gratuity, strengthening long-term retirement security. The overhaul consolidates 29 laws into four streamlined codes.

India’s labour landscape has undergone its biggest reform since Independence, with the government consolidating 29 central laws into four comprehensive Labour Codes—the Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), and Occupational Safety, Health & Working Conditions Code (2020). Effective from November 21, 2025, these codes aim to simplify compliance, enhance worker protections, and formalize employment.

While the reforms promise stronger social security, they also bring immediate financial implications for salaried employees. The redefinition of “wages” and new gratuity rules will directly impact monthly pay packets.

Major Takeaways

Uniform Definition of Wages: Basic pay, dearness allowance, and retaining allowance must form at least 50% of CTC. This increases PF and gratuity contributions but reduces take-home salary.

Provident Fund Impact: PF contributions, set at 12% of basic salary, will rise as the basic component grows.

Gratuity Reform: Fixed-term and contract employees now qualify for gratuity after just one year of service, down from five years.

CTC Restructuring: Employers may need to restructure salary packages, balancing allowances and benefits with statutory requirements.

Wider Coverage: Gig workers, platform workers, and unorganised-sector employees are now included in the social security net, expanding protections.

Notable Updates

Employees earning CTCs of ₹7 lakh, ₹10 lakh, or ₹15 lakh annually will see higher PF and gratuity deductions, as shown in recent salary calculators.

The codes aim to align India’s labour market with modern economic realities, ensuring consistency across industries.

While take-home pay may shrink, the reforms strengthen long-term retirement savings and financial security.

Conclusion: India’s new labour codes represent a trade-off between short-term earnings and long-term benefits. Though employees may initially feel the pinch in reduced take-home salaries, the expanded PF and gratuity contributions promise greater financial stability in retirement. For workers across formal and informal sectors, this marks a historic step toward inclusive social security.

Sources: Times of India, Economic Times, Hindustan Times

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