For six years the four Labour Codes sat passed but un-notified. On 21 November 2025 the Centre brought all four into effect, and states have been issuing rules since. For a shop, clinic, agency or small factory, the practical changes are concrete. Searches for "new labour code salary structure" and "gratuity 1 year" have grown every month of 2026.
1. The 50% wage rule reshapes CTC
The Code on Wages defines "wages" as basic pay + dearness allowance + retaining allowance. Excluded components (HRA, conveyance, overtime, commission, bonus, employer PF, gratuity) cannot exceed 50% of total remuneration. If they do, the excess is added back to wages.
Effect: basic (+DA) must be at least ~50% of CTC. Many small employers kept basic at 30–40% to lower PF outgo. That structure is no longer valid.
| Component | Old structure | Code-compliant |
|---|---|---|
| Basic | ₹12,000 (30%) | ₹20,000 (50%) |
| HRA | ₹10,000 | ₹8,000 |
| Special allowance | ₹18,000 | ₹12,000 |
| Employer PF (12% of basic) | ₹1,440 | ₹2,400 |
Employer cost rises slightly and take-home falls slightly, because PF, gratuity and bonus are all computed on the bigger "wages" figure. Use the employee cost calculator and in-hand salary calculator to restructure before your next payroll.
2. Gratuity after one year for fixed-term employees
Under the Social Security Code, fixed-term employees are entitled to gratuity on a pro-rata basis after one year of service (not five). Permanent employees still need five years. If you hire on 11-month or 1-year contracts, budget 4.81% of wages as gratuity provision from day one. The EPF & gratuity calculator shows the payout.
3. Overtime at double rate, wider coverage
Overtime is payable at twice the ordinary wage for work beyond 8 hours a day / 48 hours a week, and now covers supervisory staff earning under the notified ceiling. Daily hours can go up to 12 with a 48-hour weekly cap — which permits four-day weeks — but the overtime clock runs the same.
4. Appointment letters are mandatory
Every employee must receive a written appointment letter with designation, wages, category and social-security details. Small employers who hired on a handshake must issue letters retrospectively. The experience letter tool has a companion letterhead format you can adapt.
5. Women may work nights — with consent and safeguards
The OSH Code permits women to work between 7 pm and 6 am in any establishment, subject to their written consent and safety measures (transport, security, lighting). Retail and hospitality employers can finally roster evening shifts lawfully.
6. Gig and platform workers enter social security
Aggregators contribute 1–2% of turnover (capped at 5% of payouts to workers) to a social-security fund for gig workers. If you use delivery platforms rather than employing riders, the cost is on the platform, not you.
7. Wage payment timelines
Monthly wages must be paid by the 7th of the following month. Deductions are capped at 50% of wages. Wage slips are mandatory — the wage slip generator prints thermal or A5 slips in seconds.
8. ESI and PF coverage expands
ESI now applies to all establishments with 10+ workers nationwide (including hazardous units with even one worker). And the PF wage ceiling has finally moved: from 17 September 2026 the mandatory EPF coverage ceiling is ₹25,000 per month (up from ₹15,000), bringing an estimated 51 lakh more employees under compulsory PF. If you have staff earning between ₹15,000 and ₹25,000 who were outside PF, enrol them now — see the EPF ceiling explainer.
9. Compliance is lighter — one licence, one return
For most small employers the Codes replace multiple registers and returns with a single registration, a single licence and one annual return, filed electronically. Inspectors are now "inspector-cum-facilitators" with a random-allocation system.
A 30-day action plan
- Restructure salaries so basic + DA ≥ 50% of CTC; re-issue CTC letters.
- Issue appointment letters to everyone without one.
- Set up gratuity provision for fixed-term staff; review contract lengths.
- Fix payroll date to on or before the 7th; adopt wage slips.
- Update your overtime policy and time-tracking.
- Check your state's rules for thresholds on leave, working hours and night-shift conditions.
- Recompute per-head cost with the team payroll calculator.
FAQ
Does the 50% wage rule reduce employees' take-home?
Slightly, because PF deductions rise with a larger basic. Employers can offset it by raising CTC marginally, and employees gain higher PF and gratuity.
Are the Codes applicable to a shop with 3 employees?
Wage and payment rules apply to all employees. PF/ESI and some OSH provisions have headcount thresholds (10 or 20). Check your state's notified rules.
Do existing five-year employees get anything new?
Their gratuity is computed on the new, larger "wages" figure, which increases the payout.
Is a contract of 11 months a fixed-term employment?
Yes. Fixed-term employees get the same benefits as permanent staff on a pro-rata basis, including gratuity after one year.