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Labour Codes Explained: PF, gratuity, overtime rules—Key salary changes you must know
India’s new labour codes change how your salary, PF, gratuity and overtime are calculated, with new wage rules already in effect. Here’s a simple breakdown of what changes, who benefits, and how your take-home pay may be impacted.
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New labour codes: PF, gratuity, overtime rules—what changes for your salary. Representational Image
Written By: Ankit Kumar
Updated: Wed, May 06, 2026
10:15 PM IST
10:15 PM IST
New Delhi, ZeeBiz WebDesk
India’s new labour codes could change how your salary is structured, how much PF you save, and even your take-home pay. Key rules - including the new definition of wages have already come into effect from November 21, 2025, with more changes rolling out as states notify rules. The four labour codes - on wages, social security, industrial relations and workplace safety - replace 29 older laws. They aim to simplify rules and expand benefits, but also bring real changes to PF contributions, gratuity payouts and overtime pay. Here’s a simple breakdown of what changes and what it means for you.
What are the four labour codes
The government has merged 29 Central labour laws into four codes:
- Code on Wages, 2019
- Industrial Relations Code, 2020
- Code on Social Security, 2020
- Occupational Safety, Health and Working Conditions Code, 2020
Key takeaways for employees
- Overtime beyond 8 hours gets at least 2x pay
- PF calculation may increase in some cases
- Gratuity calculation based on new wage definition
- Take-home salary may change depending on salary structure
Overtime rules: What the law says
Under the new labour codes, the standard working limit remains 8 hours a day and 48 hours a week. Any work beyond this is treated as overtime. As per the law, employees whose wages are fixed under the Code must be paid at least twice (2x) their normal wage rate for overtime work, according to the Ministry of Labour & Employment. There is also an important clarification from official FAQs: overtime itself is not counted as part of wages, but it is included in total remuneration when applying the 50% wage rule.
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Wage rules explained: How your salary structure may change
A key change under the new labour codes is a uniform definition of wages, introduced by the Ministry of Labour & Employment. In simple terms, wages now mainly include basic pay, dearness allowance and retaining allowance, while components like HRA, bonus, employer PF contribution, overtime and gratuity are kept outside this definition.
There’s also an important rule that directly affects your salary structure: allowances cannot exceed 50% of total remuneration. If they do, the excess amount is added back to wages. As per official clarification, employer PF contribution and statutory bonus are considered while applying this 50% rule, whereas gratuity, ESI and other retirement benefits are not included. This change is crucial because it can impact PF contributions, gratuity payouts and overall take-home salary.
PF rules explained: What it means for your salary
Provident Fund (PF) rules under the new labour codes apply to establishments with 20 or more employees, according to the Ministry of Labour & Employment. Both the employer and employee are required to contribute 10% of wages each, though some sector-specific variations may apply.
PF may be calculated on a higher wage base if companies revise salary structures under the new rules. This can increase your retirement savings, but may also reduce your monthly take-home pay in some cases.
Gratuity rules explained: How your payout may increase
Gratuity rules under the new labour codes remain largely familiar but come with some important updates. Employees are eligible after 5 years of continuous service, while fixed-term employees qualify after completing 1 year of service. The payout is calculated at 15 days’ wages for every completed year of service.
As clarified by the Ministry of Labour & Employment, the new definition of wages applies to gratuity from November 21, 2025. This means gratuity may now be calculated on a revised wage base, which can increase the final payout depending on how your salary is structured.
Social security boost: More workers now covered under new rules
The Social Security Code expands benefits to a much wider workforce, as per the Ministry of Labour & Employment. For the first time, gig and platform workers are brought under the social security framework, with aggregators required to contribute 1–2% of their turnover (within prescribed limits).
Existing benefits such as EPF, ESI, maternity benefits and employee compensation will continue. The move is aimed at extending formal protection to millions of workers in the unorganised and gig economy.
Minimum wage rules: What it means for your salary protection
Minimum wage rules now apply across sectors, ensuring employers cannot pay below the rates notified by the government. The law also makes timely payment of wages mandatory, strengthening basic salary protection for employees.
As clarified by the Ministry of Labour & Employment, these provisions apply to all employees, including white-collar workers, not just those in traditional labour roles.
Overtime, leave rules: Who is eligible under new labour codes
Overtime and leave benefits under the new labour codes depend on your role and wage category. Overtime provisions apply to employees whose minimum wages are notified under the Code, and are not automatically extended to all managerial or higher-paid roles.
Leave rules are mainly governed by the Occupational Safety Code and apply primarily to workers. In most cases, leave can be carried forward up to 30 days, while employees in higher-paid or managerial roles may continue to follow company-specific policies.
What the new labour codes mean for you
The new labour codes bring a mix of benefits and adjustments for employees. On the positive side, they aim to create a clearer wage structure, expand social security coverage, and potentially increase PF savings and gratuity payouts.
At the same time, changes in salary structuring may impact your monthly take-home pay, and benefits can vary depending on your role, wage level and company policies. Full implementation will also depend on how individual states roll out the rules.
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Ankit Kumar
Ankit Kumar
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