India’s new Labour Codes effective November 21, 2025, unify and simplify 29 existing laws, introducing significant changes to provident fund (PF), income tax, and gratuity. The broader definition of wages raises mandatory contributions, expands social security to gig workers, and makes fixed-term employees eligible for gratuity after one year.
The Government of India’s overhaul through four new Labour Codes—Code on Wages 2019, Industrial Relations Code 2020, Code on Social Security 2020, and Occupational Safety & Health Code 2020—brings transformative impact on employee benefits and statutory deductions:
Key Highlights:
Wider Wage Definition: At least 50% of total remuneration (CTC) must be classified as “wages,” including basic pay plus dearness and retaining allowances, increasing PF and gratuity calculation bases.
Higher PF Contributions: Mandatory 12% PF deduction calculated on broader wage definitions raises retirement corpus, though the ₹15,000 wage cap remains.
Enhanced Gratuity Benefits: Fixed-term employees (FTEs) become eligible for pro-rata gratuity after one year of service, improving financial security amid changing work patterns.
Income Tax Impact: While gratuity ceiling of ₹20 lakh remains partially tax-exempt, higher PF contributions may slightly reduce monthly take-home salary for some, balanced by long-term savings.
Inclusion of Gig Workers: For the first time, gig and platform workers qualify for social security benefits, with aggregators mandated to contribute from turnover.
Simplified Compliance: The consolidated codes replace fragmented laws, supporting employers and employees with clearer, uniform regulations.
Employers may restructure allowances, potentially affecting monthly in-hand pay without changing gross salary.
These changes aim to strengthen social security, formalize employment benefits, and accommodate evolving workforce dynamics in India.
Sources: Times of India, Hindustan Times, Moneycontrol, Economic Times, PIB