India’s New Labour Codes Take Effect: Basic Pay Must Be 50% of CTC, Boosting PF and Gratuity

Nov, 23 2025

At precisely 3:01 PM UTC on November 21, 2025, four sweeping Labour Codes came into force across India, replacing 29 outdated labor laws that had lingered since before and after independence. The change wasn’t just bureaucratic—it rewrote the financial DNA of millions of Indian workers. Basic pay must now make up at least half of an employee’s total Cost to Company (CTC), a rule that’s already sending ripples through payroll departments in Mumbai, Bangalore, and Delhi. For the first time, gig workers, plantation laborers, and digital media freelancers are formally covered under social security. Prime Minister Narendra Modi called it "the biggest reform in the interest of workers since independence," and for many, it’s already changing how they plan for retirement, health, and even night shifts.

What Changed in the Wage Code?

The Ministry of Labour and Employment’s Code on Wages, 2019 is the engine driving the most visible changes. For decades, employers in sectors like IT and manufacturing routinely structured salaries to minimize statutory deductions: basic pay might be just 30% of CTC, with the rest tucked into allowances like HRA, transport, and special bonuses. Not anymore. The new rule forces basic pay, dearness allowance, and retaining allowance to total at least 50% of CTC. That means more money goes into the Employees' Provident Fund Organisation (EPFO)—because PF contributions are 12% of basic pay, not the whole CTC. For someone earning ₹60,000/month with a 40% basic, PF used to be ₹2,880. Now, with 50% basic, it jumps to ₹3,600. That’s a 25% boost in retirement savings, year after year.

But here’s the catch: if your total CTC stays the same, and your basic pay rises, other allowances—like HRA or meal vouchers—will shrink. Some employees may see their take-home pay dip, even as their PF grows. "It’s not a raise," says Mohammed Razvi, a partner at Mumbai-based law firm Khaitan & Co.. "It’s a restructuring. Employers aren’t adding money—they’re redistributing it. The government’s goal is security, not immediate cash flow."

Gratuity, Gig Workers, and the New Safety Net

The Code on Social Security, 2020 is equally transformative. Gratuity—once locked behind five years of continuous service—is now available after just one year for fixed-term employees. That’s huge for contract workers in IT, media, and retail who previously walked away with nothing. And for the first time, gig workers on platforms like Swiggy, Zomato, and Ola are covered. Aggregators must now contribute 1-2% of their annual turnover into a social security fund, capped at 5% of what they pay workers. It’s not perfect, but it’s a start. The government estimates this alone will extend coverage to 12 million platform workers.

Women workers, too, gained ground. No longer banned from night shifts in factories or call centers, they can now work after 7 PM—with consent and safety measures in place. In Delhi and Hyderabad, factories are already adjusting shift patterns. "This isn’t just about rights," says Suchita Dutta, executive director of the Indian Staffing Federation. "It’s about dignity. Women have been working nights for decades. The law finally caught up."

Health, Hours, and the National Floor Wage

The Occupational Safety, Health and Working Conditions Code, 2020 caps daily work at 12 hours and weekly hours at 48. Overtime? Double pay. No more loopholes. And for workers over 40, free annual health check-ups are now mandatory—a quiet but critical win for aging laborers in textiles, mines, and construction.

Meanwhile, the Ministry of Labour and Employment has set a National Floor Wage. No state can pay below ₹375 per day (₹9,750 monthly). States like Bihar and Uttar Pradesh, where minimum wages were as low as ₹280/day, now have to raise them. The shift won’t be instant, but it’s irreversible. Labour Minister Mansukh Mandaviya has pledged full implementation by December 31, 2025, with monitoring committees in every state.

Why This Matters Beyond Paychecks

This isn’t just about numbers. It’s about trust. For years, workers in MSMEs, home-based tailors, and small IT firms were invisible to the system. Appointment letters? Optional. PF enrollment? Delayed or skipped. Now, every employee must get a formal letter within 30 days of joining, detailing wages, PF, gratuity, and leave. That paper trail means accountability. It means you can prove your tenure. It means you can claim benefits even if you change jobs.

The government says social security coverage has jumped from 19% of the workforce in 2015 to 64% today. That’s 260 million people newly protected. And with digital portals and a national helpline, filing grievances is easier than ever. The real test? Enforcement. Will small factories in Ludhiana or roadside vendors in Jaipur comply? That’s the next chapter.

What’s Next?

Employers have until December 31, 2025, to fully align pay structures. The Ministry has warned of penalties for non-compliance, including fines and blacklisting. Workers should check their payslips: is basic pay now above 50%? Is PF higher? Is gratuity now visible in your contract? If not, ask. The law is on your side.

Frequently Asked Questions

How does the new wage definition affect my take-home pay?

If your employer keeps your total CTC the same, raising your basic pay to 50% means allowances like HRA or transport will shrink. Your gross salary won’t increase, but your PF and gratuity will. For example, a ₹60,000 CTC with 40% basic gives ₹2,880 PF; with 50% basic, it’s ₹3,600. Your net pay might drop slightly, but your long-term savings grow.

Do gig workers really get benefits under the new code?

Yes. Aggregators like Swiggy and Ola must contribute 1-2% of their annual turnover to a social security fund for gig workers. This covers health insurance, accident benefits, and maternity aid. While it’s not a full salary, it’s the first formal safety net for 12 million platform workers. The fund is managed by the EPFO, so benefits are portable across platforms.

Can I claim gratuity after working only one year?

Only if you’re on a fixed-term contract. For permanent employees, five years still applies. But if you’re hired for a specific project—say, six months to build an app—you’re now eligible for gratuity after just one year. This applies to contract roles in IT, media, and retail. Check your appointment letter: it should state your employment type.

What if my employer refuses to give me an appointment letter?

You can file a complaint on the new National Labour Portal (labour.gov.in). Employers must issue appointment letters within 30 days of hiring. Failure is a punishable offense under the Code on Wages. Keep any emails, payslips, or WhatsApp messages as proof. The Ministry has set up state-level grievance cells to act within 15 days.

Are night shifts now legal for women?

Yes, with consent and safety measures. Previous bans on women working between 7 PM and 6 AM are lifted. Factories and call centers must now provide transport, lighting, and security. This applies to all sectors, including IT and manufacturing. Many firms in Bengaluru and Hyderabad have already updated policies. You cannot be forced to work nights—but you can choose to.

How does this affect small businesses and MSMEs?

MSMEs face higher compliance costs, but the government has offered phased implementation and tax incentives for PF contributions. Many small firms had been avoiding PF to cut costs. Now, they’re being pulled into the formal system. The Ministry estimates 87% of MSMEs will be compliant by March 2026. The long-term benefit? Better employee retention and access to credit, since formal records improve loan eligibility.