To streamline and unify multiple labor laws, the government has introduced four comprehensive labour codes. Notable changes include the capping of allowances that can be factored into the calculation of basic salary under the Code on Wages, 2019, and the expansion of ESIC (Employees’ State Insurance) coverage under the Code on Social Security, 2020
Frequently asked questions (FAQs) that have emerged following the introduction of the new labor codes.
New labour codes 2025 FAQs for employees
1. When do the labour codes come into force?
The four labour codes - the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020 are being made effective from 21st November 2025.
2. Who will be impacted by the new labour codes?
"There are more than 50 crore workers in the organised and unorganised sector of the country. A majority of these workers, i.e. around 90 percent, are in the unorganised sector. Through these four Labour Codes, it has been ensured that all these workers will get the benefit of Labour Laws. Now all workers of the organised and unorganised sector will get the minimum wages, and a large section of workers in the unorganised sector would also get social security," as per the Ministry of Labour.
3. Will basic pay increase under the new labour codes?
A new definition of wages has been introduced, capping allowances at 50% of total pay. As a result, basic pay will increase, leading to higher contributions toward the employees provident fund (EPF), employees pension scheme (EPS) and gratuity.
4. What does "wages" include under the labour codes?
Wages include all remuneration payable to an employee. It includes:
5. What major components are excluded from "wages"?
The following are not included in wages unless they exceed thresholds set by the code:
Statutory or contractual bonuses
Conveyance or travel allowances
Overtime payments
Gratuity and other retirement benefits
6. What is the key provision regarding allowances for wage calculation?
Total allowances cannot exceed 50% of the sum of basic pay and DA.
Any excess allowances are treated as part of basic salary.
This includes special allowances, commission, HRA, conveyance, travel allowance, and employer contributions to EPS and pension accounts.
“The aggregate of all allowances shall never exceed basic pay plus DA. This ensures a higher proportion of salary is counted as wages, impacting benefits like PF and gratuity,” said Mumbai-based tax and investment expert Balwant Jain.
7. What are the permitted modes of payment of wages?
Wages may be paid through:
Cash
Cheque
Bank transfer
Electronic mode
8. Will my take-home salary fall under the new labour codes?
Higher basic pay and DA increase gratuity and PF contributions.
This may reduce monthly take-home pay if CTC remains fixed.
Employer PF contribution increases, reducing taxable income.
“Employees earning below ₹15,000/month may see a slight reduction in take-home due to higher PF. The change applies prospectively from the Code’s implementation date,” said Divya Baweja, Deloitte India.
9. What is the difference between total remuneration (CTC) and wages?
Wages are a subset of CTC. Only
basic pay, DA, retaining allowance, and excess allowances over the 50% cap count as wages.
CTC includes perks, allowances, bonuses, and benefits.
10. Are bonuses included in wages under the new labour codes?
11. How do the labour codes affect gratuity?
Under Section 53 of the code, the Government has reduced the eligibility requirement for
gratuity for Fixed Term Employees (FTEs) from five years to one year. In case the employee completes one year of continuous service, gratuity shall be applicable on a proportionate basis.
For employees who are not on a fixed-term, gratuity eligibility remains 5 years.
Gratuity will now be calculated based on the revised wage definition.
12. How do the labour codes affect PF contribution?
- Employer and employee PF contributions are calculated on wages. Since base pay has to be 50%, PF contributions will increase resulting in less take-home salary.
13. How has the geographical and employment scope of ESIC (Employees' State Insurance Corporation) coverage expanded?
The code significantly broadens ESIC's reach in two main ways:
ESIC now applies pan-India, which means the previous limitation requiring an establishment to be in a specific “notified area” has been eliminated.
Establishments with fewer than 10 employees can now voluntarily opt in to ESIC if both the employer and majority of employees mutually consent.
Coverage is now mandated for hazardous occupations and extended to plantation workers.
14. How has EPFO (Employees' Provident Fund Organisation) coverage been made universal?
The code removed the complex, industry-specific coverage listed in the old Schedule 1 of the Employees Provident Fund & Miscellaneous Provisions Act, 1952.
EPF provisions now apply universally to all establishments that have 20 or more employees, regardless of the type of industry or business sector.
15. Which major social security benefits are now universally available to all workers?
The code aims to provide a comprehensive social safety net across both the formal and informal sectors:
The benefits of the new code will be available to workers of both organised and unorganised sector.
Specifically, the core benefits now universally available to all workers include:
Employees’ Provident Fund (EPF)
Employees’ Pension Scheme (EPS)
Coverage of all types of medical benefit under Employees’ Insurance (ESIC)
The
new labour codes standardise wage structures, ensuring that basic pay and DA form at least 50% of the total salary. While this strengthens retirement benefits like PF and gratuity, it may slightly reduce take-home salary. Employees should review their salary structure to understand the impact.
Introduction of the new labour codes, providing clear answers on how these changes will impact employee finances and retirement benefits.