The new labour law 2025 changes how salary structures are calculated in India. These changes affect basic pay, PF contributions, gratuity, and take-home salary for many employees. Businesses must redesign their wage breakdown to match the rules under the new labour codes.
The uniform definition of wages is now the biggest update. Under the new framework, basic salary, dearness allowance, and retaining allowance must be at least 50% of the total compensation or total salary. This change improves social security benefits, ensures fairness, and increases long-term savings.
To help HR teams, payroll managers, and employees understand these reforms correctly, a smart payroll calculator is helpful. Bharat Payroll software supports automated salary restructuring, PF calculations, compliance checks, and tax planning based on the new labour law.
Why India Introduced Four New Labour Codes
India has combined old labour laws into four new labour codes:
- Code on Wages
- Industrial Relations Code
- Code on Social Security
- Occupational Safety, Health, and Working Conditions Code (OSHW Code)
These laws introduce a uniform definition of wages, social security coverage, and mandatory contributions for employees in both organized and unorganized sectors.
The new codes also aim to:
- Protect fixed-term employees
- Support gig workers and platform workers
- Improve maternity benefits
- Strengthen workplace safety
- Extend social security schemes beyond formal employment
- Improve conditions for contract workers and scheduled employment
Overall, these reforms bring more standardization, equal pay, safety, health, and working conditions, and stronger labour protections.
Understanding the New Wage Definition
Under the new wage definition, three core items are counted as wages:
- Basic salary
- Dearness allowance
- Retaining allowance
These items must now make up at least 50% of total pay or wage structures.
If allowances like HRA, travel allowance, medical allowance, or bonuses exceed 50%, the extra value will be added back to wages for calculating statutory benefits.
This update replaces multiple old rules, improves clarity, and maintains consistency for PF contributions, gratuity, statutory bonus, and social security contributions.
Salary Structures Before and After 2025
Earlier, companies could design salary structures with a lower basic component to increase the monthly take-home pay. Many businesses used different wage definitions under laws like:
- Factories Act
- Code on Wages
- Other state-level rules
Now, the new labour law ensures a uniform definition, so employers cannot reduce the basic component below 50%.
This reform improves:
- Social security benefits
- Provident fund and gratuity
- Long-term safety under the social security umbrella
Employees may see a slight reduction in take-home pay, but retirement savings and compulsory savings grow faster.
Gross Salary Remains the Same
A key point under the new regime is that total compensation or annual CTC does not change. Only the internal salary components change.
- Gross salary stays constant
- Salary breakup changes
- PF and gratuity increase
- The monthly take-home salary may drop slightly
This redesign is a trade-off between tax efficiency and long-term benefits. With higher wage components, social security grows automatically.
Impact on Monthly Take-Home Pay
Employees with a lower basic pay earlier will see more restructuring. The new formula increases PF contributions, and this reduces monthly cash.
However:
- PF has a statutory ceiling, so many employees earning more than ₹15,000 per month will face minimal impact
- Gratuity grows faster
- Retirement money increases without effort
So, there is a short-term adjustment, but stronger savings and other benefits later.
CTC ₹7 Lakh Salary Comparison
Old Structure
- Basic: ₹2.8 lakh (40%)
- PF: ₹33,600
- Gratuity: ₹13,468
- Take-home salary: ₹6.52 lakh
New Structure
- Basic: ₹3.5 lakh (50%)
- PF: ₹42,000
- Gratuity: ₹16,835
- Take-home salary: ₹6.41 lakh
Key observations
- Annual take-home reduces by around ₹11,767
- Gratuity increases by ₹3,367
- PF grows by ₹8,400 annually
Employees receive higher social security in exchange for slightly lower monthly income.
CTC ₹10 Lakh Salary Comparison
Old Structure
- Basic: ₹4 lakh (40%)
- Employer PF: ₹48,000
- Gratuity: ₹19,240
- Take-home salary: ₹8.84 lakh
New Structure
- Basic: ₹5 lakh (50%)
- Employer PF: ₹60,000
- Gratuity: ₹34,510
- Take-home salary: ₹8.69 lakh
Key Observations
- Annual take-home reduces by around ₹15,270
- Gratuity doubles from ₹19,240 to ₹34,510
- After 7 years, the gratuity value increases from ₹1.34 lakh to ₹2.41 lakh
Higher benefits make this a strong social security advantage.
CTC ₹15 Lakh Salary Comparison
Old Structure
- Basic: ₹6 lakh (40%)
- PF: ₹72,000
- Gratuity: ₹28,860
- Take-home salary: ₹12.78 lakh
New Structure
- Basic: ₹7.5 lakh (50%)
- PF: ₹90,000
- Gratuity: ₹36,075
- Take-home salary: ₹12.65 lakh
Key Observations
- Take-home drops by around ₹13,414
- PF grows by ₹18,000
- Gratuity increases by ₹7,215
For senior employees, the cumulative retirement corpus becomes very significant.
Who Gets Impacted the Most?
Employees with a lower basic structure earlier will see the biggest changes. They may experience higher mandatory contributions.
Groups most impacted include:
- Employees earning under ₹15,000
- Fixed-term employees
- Contract labour
- Workers with higher allowances and lower basic salaries
Companies already following the 50% norm will face minimal restructuring.
Short-Term Pain, Long-Term Gain
The new labour codes promote:
- Future savings
- Better retirement planning
- Higher statutory benefits
- Safety under social security schemes
Employees trade short-term cash for secure long-term outcomes under a new wage definition.
Gratuity, provident fund, and other social security benefits strengthen your future without needing manual planning.
The Industrial Relations Code and Code on Social Security expand benefits to:
- Gig workers
- Platform workers
- Fixed-term contract workers
- Multiple flexible employment formats
This helps India move beyond traditional jobs and modernize labour protection.
Better Working Conditions and Safety
The working conditions code and OSHW Code improve safety, health, and working conditions. This covers workplace safety, dispute resolution, and compliance standards for factories and service workplaces.
Businesses must adopt updated hr policies, working hours, equal pay, and compliance reporting.
Why Payroll Automation Matters Now
Calculating salaries, PF, and allowances manually under the four labour codes can be confusing at scale. Advanced HR teams need secure payroll software for:
- Salary automation
- PF and gratuity accuracy
- Tax efficiency
- Legal compliance
- CTC restructuring
- Monthly take-home pay forecasting
Bharat Payroll software ensures compliance, reduces errors, and prevents miscalculations under the new wage structures.
Conclusion
The new labour law 2025 improves fairness and long-term financial safety for employees. While monthly take-home pay may reduce slightly, the benefits under the social security umbrella grow automatically through higher PF, gratuity, and other statutory protections.
Businesses should redesign payroll structures, build compliance, and automate calculations. Bharat Payroll makes this process simple by delivering accurate wage calculations, easy restructuring, and HR policy alignment under the new definition of wages.
Start Automated Salary Restructuring
Create accurate salary structures with Bharat Payroll. Easily automate PF, gratuity, and CTC under the new wage definition for instant compliance.
Frequently Asked Questions
1. How does the new labour law change my salary?
Your salary structure changes because the new codes require basic salary, dearness allowance, and retaining allowance to be at least 50% of total compensation. This increases PF and gratuity but slightly reduces take-home salary while improving long-term social security.
2. Will my gross salary change under the new labour codes?
Gross salary remains the same. Only the salary breakup changes under the uniform definition of wages. Higher mandatory contributions increase PF and gratuity. Monthly take-home reduces slightly, but overall retirement benefits and social security protections improve significantly over time.
3. Do companies need payroll software for this?
Yes. Automated payroll makes restructuring faster, accurate, and compliant. Bharat Payroll software calculates PF, gratuity, tax planning, and wage structures without manual work. It ensures HR teams follow legal rules and error-free salary calculations across multiple employee categories.
4. How do the new labour codes impact contract workers or fixed-term employees?
Contract workers and fixed-term employees also gain access to stronger social security coverage. Mandatory PF and gratuity improve retirement savings. Salary structures must be redesigned to meet the uniform wage requirement for fixed-term employment under the new laws.
5. Do all employers need to follow the new wage definition?
Yes. All employers must follow the new wage definition once state governments notify their rules. These reforms apply to most sectors, including scheduled employment, factories, and service workplaces. It ensures equal pay, stronger statutory benefits, and predictable salary structures nationwide.
