New Labour Code 50% Wage Rule: What Changes in PF, Gratuity and In-hand Pay

The four labour codes came into force on 21 November 2025. For most salaried people and small employers, one change matters most: the new meaning of wages.

The 50% rule

Under the Code on Wages, "wages" means basic pay, dearness allowance (DA) and retaining allowance. Allowances such as HRA, conveyance and special allowance are kept out, but only up to 50% of total pay. Anything above that is added back to wages.

One example

Allowances are ₹25,000, but only ₹20,000 (50% of ₹40,000) can stay out. So ₹5,000 is added back, and wages become ₹20,000 for PF and gratuity.

What changes

• PF: if PF is paid on full wages, both the employee and employer share go up and in-hand pay goes down a little. If PF is paid only up to the ₹15,000 ceiling and basic is already ₹15,000 or more, nothing changes.
• Gratuity: worked out on the higher wages, so the amount set aside goes up. Fixed-term employees get gratuity after one year of service.
• Cost to the employer: goes up slightly where PF and gratuity rise.

Check any salary in a few seconds with our free labour code salary calculator.

For employers with a team

The New Labour Code Salary Kit checks every employee at once, shows who is below 50%, the change in PF, ESI, gratuity and in-hand pay, and includes a salary slip and a Word revision letter for staff.

General information, not legal advice. Some rules are notified by each state, so confirm with your accountant.