Compliance
India's four labour codes took effect on 21 November 2025. The rule that reshapes payroll is the wage definition: Basic + Dearness Allowance + Retaining Allowance must be at least 50% of total remuneration. Enter your structure and see both the verdict and the cost of fixing it.
Asks only what it must and fills the rest with the most common value. Everything it filled in is listed under the result.
The annual CTC and the basic percentage are enough for a verdict. Everything else is filled in with the value most common in Indian payroll, and each one is listed under the result.
Enter the annual figure exactly as the offer letter or contract states it.
If you have a payslip, this is basic divided by the gross on it. To enter the rupee amount instead, switch to Detailed.
At this share: basic ₹37,763 a month, gross ₹94,407 a month
On 21 November 2025 the Government of India brought all four labour codes into force at once, more than five years after Parliament passed them. Twenty-nine central labour statutes collapsed into four. The change with the most immediate payroll consequence is that all four codes now share a single definition of "wages". The long-standing convention across Indian payroll has been to set basic pay at 30–40% of gross and fill the rest with allowances. That structure is now non-compliant.
Twenty-nine statutes consolidated into four. The codes cover different subjects but share one wage definition — that shared definition is the design of the reform.
Minimum Wages Act · Payment of Wages Act · Payment of Bonus Act · Equal Remuneration Act
The source of the wage definition in s.2(y) and of the 50% rule. Minimum wages now cover every worker rather than only scheduled employments, no state may fix a minimum below the central floor wage, and the limitation period for wage claims is now three years.
Trade Unions Act · Industrial Disputes Act · Industrial Employment (Standing Orders) Act
The threshold for needing government approval to retrench or close rises from 100 to 300 workers. In exchange, 60 days' notice before a strike is now required in every industry, and establishments with 300 or more workers must recertify their standing orders.
EPF Act · ESI Act · Payment of Gratuity Act · Maternity Benefit Act · Employee's Compensation Act and four more
EPF, ESI and gratuity now sit in one statute. Fixed-term employees whose contract term expires earn gratuity after one year instead of five, and gig and platform workers are brought within social security for the first time.
Factories Act · Contract Labour Act · Inter-State Migrant Workmen Act and ten more
Every employee must be issued an appointment letter. The contract-labour registration threshold moves from 20 to 50 workers, and annual leave now accrues after 180 days of work in the year rather than 240.
This is where the practical work is. Section 2(y) defines wages as three included heads minus eleven excluded ones, then closes the obvious loopholes with a proviso (the 50% add-back) and an Explanation (pay in kind, capped at 15%). Section 2(88) of the Code on Social Security uses the same definition, which is why EPF, ESI and gratuity follow it.
The formula is unchanged — 15/26 × last drawn monthly wages × years of service, now under s.53(2) of the Code on Social Security and Explanation 3 to that section (formerly s.4(2) of the Payment of Gratuity Act). What changed is "wages": it used to mean basic + DA, and it now means the Code wage — basic + DA + retaining, plus any amount added back under the 50% rule. The labour ministry's FAQs say this applies from 21 November 2025, and that an employee leaving on or after that date is paid on the last-drawn Code wage for all of their service. With pay of ₹1,00,000 a month and basic of ₹35,000, half of total remuneration including the employer PF of ₹3,000 (on the ₹25,000 ceiling) is ₹51,500 — the gratuity wage, about 47% above the old basic + DA base, whether or not basic is actually raised. Restructuring only brings the payslip in line with what the law already computes. Enter total monthly pay in the gratuity calculator to see the figure for an individual employee.
The accounting consequence is larger than the cash one. Gratuity is measured actuarially under Ind AS 19 (or AS 15), so a change in the wage base re-values liability already accrued for past service. That re-measurement lands in the year the codes take effect and can appear in group results as an unexpected charge. Commission an actuarial re-valuation before the Indian entity closes its books.
The OSH Code lowers the annual-leave qualifying period from 240 days worked in the previous year to 180. The accrual rate stays at one day for every twenty days worked, so mid-year joiners and employees returning from long absence now qualify far more often.
Carry-forward is capped at 30 days and anything above that must be encashed at year end. These leave rules cover "workers": staff employed mainly in a managerial or administrative capacity, and supervisors earning more than ₹18,000 a month, fall outside them (labour ministry FAQ, 16 March 2026, Q20), and their leave is governed instead by state shops-and-establishments law and company policy. If your Indian entity has been applying a head-office "use it or lose it" leave policy to workers, change it now. Encashment is paid at the wage rate, so a higher basic also raises the cost of every leave payout.
Working hours remain eight a day and 48 a week, but state rules may now allow up to twelve hours a day on a four-day week. Overtime is payable at twice the ordinary rate of wages, and "ordinary rate" follows the new wage definition too.
Fixed-term employment is now recognised in statute. Fixed-term employees must receive the same wages, hours and benefits as permanent staff, and expiry of the term requires neither notice nor retrenchment compensation — but when the term expires, a single year of service earns gratuity (fifteen days' wages per year).
The contract-labour registration threshold rose from 20 to 50 workers, while a new rule bars contract labour in the core activities of an establishment, with limited exceptions — work ordinarily done through contractors, intermittent work, or a sudden increase in volume that must be finished on time (OSH Code s.57). If a production line or your principal service is staffed through a manpower vendor, the arrangement needs review.
The 50% rule applies to contract and daily-wage workers as well. The principal employer remains liable for checking that vendor payroll complies and for meeting EPF dues the contractor fails to pay, so vendor invoices need to show the wage split.
The codes are already in force and no general transition period was notified. Until new rules are notified, the old ones continue so far as they are consistent with the codes (labour ministry FAQ, 30 December 2025). The central rules under all four codes were notified on 8 May 2026; state rules are still being finalised one state at a time. Work through this in order.
Pull the wage share by grade and function and count how many employees fall short and by how much. The output of this tool is the input to that exercise.
Decide first whether to hold gross constant or protect take-home. Protecting take-home means raising gross, which costs materially more.
Instruct the actuary to re-measure on the new wage base and build the re-measurement loss into the closing plan.
Raise the wage base in the monthly ECR to the Code wage — from the November 2025 wage month on Adullam Tools' reading — and check the ESI contribution base the same way. Whether to file arrears for past months is a question for local counsel, not a default.
Reissue employment contracts on the new structure and give every employee the appointment letter the OSH Code requires.
Establishments with 300 or more workers must redraft and certify standing orders against the new model.
Show each affected employee the rupee change in take-home alongside the rupee increase in PF and gratuity. The comparison table on this page is built for that conversation.
Watch the labour department notifications in every state where you operate; forms and deadlines are being finalised state by state.
The Code on Wages grades its penalties (s.54). Paying less than the amount due carries a fine of up to ₹50,000. An employer already convicted of that offence who commits it again within five years of the earlier offence faces imprisonment of up to three months, a fine of up to ₹1,00,000, or both. The codes also replace the old inspector with an "inspector-cum-facilitator" and allow an opportunity to comply before prosecution for some contraventions.
In practice the fine is not the problem — EPF recovery is. Arrears carry simple interest at 12% a year under s.127 of the Code on Social Security (formerly EPF Act s.7Q; rate notified by S.O. 2698(E) with effect from 21 November 2025) and damages under s.128 (formerly s.14B) of 0.25% to 1% of the arrears for each month of delay, capped at the arrears themselves (EPF Scheme 2026, para 23). Left open for a year, interest and damages together can add up to about a quarter of the arrears, and the employer usually ends up funding the employee share for past periods as well.
In an M&A or head-office audit the exposure is priced directly. If the Indian entity may be sold or audited, remember that every month left non-compliant sits on the balance sheet as a contingent liability.
The questions HR and finance teams actually ask about the new wage definition.
Yes. The wage definition and the 50% rule apply to every establishment regardless of headcount. Headcount thresholds attach to other obligations: standing orders at 300, retrenchment approval at 300, contract-labour regulation at 50, EPF at 20 (so a twenty-person entity is already in), and ESI and gratuity at 10 — ESI can reach even a single employee in a hazardous occupation the Centre notifies. Salary structure has no exemption at all.
Take-home genuinely falls, because the employee's 12% EPF applies to the higher basic. The money is not lost — it accrues in the PF account at roughly 8% and is generally tax-free on withdrawal after five years of continuous service. The way to defuse the objection is to show the three numbers side by side: monthly take-home down ₹X, annual PF accrual up ₹Y, gratuity entitlement up ₹Z. That is exactly what the comparison table on this page produces.
For EPF alone, largely yes — if you contribute only up to the statutory wage ceiling (raised in September 2026 by S.O. 5109(E)), a higher basic changes nothing once wages (including any 50% add-back) are above the ceiling. But gratuity provisioning, overtime rates, retrenchment compensation and leave encashment are all computed on the full wage, add-back included, so they are higher than before the codes whether or not basic is raised. Toggle the EPF option on this page to see both cases.
The statute already computes as if wages were 50% (first proviso). Every month you have filed EPF and provisioned gratuity on the lower base is an under-reported period. If an EPFO audit or labour inspection picks it up, recovery comes with simple interest at 12% a year (Code on Social Security s.127, formerly EPF Act s.7Q) and damages of up to 1% of the arrears a month, capped at the arrears (s.128, formerly s.14B). The choice is between fixing it now and paying arrears later, not between fixing it and not.
For employees on the old regime it can. The HRA exemption under Schedule III Table Sl.11 read with Rule 279 (formerly s.10(13A) and Rule 2A) is the least of actual HRA, rent paid less 10% of basic, and 50% of basic in a metro — so a smaller HRA reduces the exemption, though a higher basic raises the third limb and partly offsets it. Employees on the new regime get no HRA exemption at all, so nothing changes for them. Since most salaried taxpayers in India are now on the new regime, the practical impact is smaller than it first appears.
Not CTC, and not quite gross either. All remuneration covers everything payable to the employee — basic, DA, retaining, HRA, conveyance, LTA, special allowance, meal and medical allowances, overtime and commission. The labour ministry's Additional FAQs (16 March 2026, Q1) also count statutory components such as the employer's PF and pension contributions and statutory bonus, and leave out gratuity, ESI and other retirement benefits. FAQs are not legally binding, but they are the government's stated reading, so this calculator adds the employer's PF and EPS (12%, up to the EPF wage ceiling) to the pay you enter. That is why a structure with basic at exactly 50% of gross comes out slightly short — by about ₹1,500 a month above the ceiling (6% of the ₹25,000 ceiling). Do not enter the employer PF yourself.
Partly. Commission, overtime and statutory bonus are excluded from wages but still count in the 50% test, so they belong in the denominator; the labour ministry's FAQs confirm this for overtime and statutory bonus. Annual performance incentives are different: the ministry's FAQs (30 December 2025, No. 3; 16 March 2026, Q4) say performance-based incentives, ESOPs, variable pay and reimbursements do not form part of wages for the computation. FAQs are not law and there is no case law yet, so if you include an incentive to be safe, spread the expected annual amount over twelve months — putting it all into the month of payment makes the ratio collapse in that month. This calculator counts whatever you enter under other allowances and bonus.
On the text of the Code, mostly not. The value of house-accommodation and other amenities is itself an excluded head (clause (b)), so a company flat, or a car provided as an amenity, sits with the exclusions in the 50% test rather than being added to wages. The 15% rule in the Explanation to s.2(y) covers remuneration in kind given in lieu of wages; the labour ministry's examples are food coupons, ration items and mobile recharges. That kind of in-kind pay counts as wages only up to 15% of total wages: if wages are ₹50,000 a month, at most ₹7,500 can be added even if the actual value is ₹20,000. This tool trims the excess automatically and flags it. Note that the income-tax valuation of perquisites under Rule 15 of the Income-tax Rules, 2026 (formerly Rule 3) is a separate exercise and will not produce the same number.
Gratuity is directly proportional to wages, and wages now mean the Code wage — basic + DA + retaining, plus any 50% add-back. With pay of ₹1,00,000 a month and basic of ₹35,000, half of total remuneration including the employer PF of ₹3,000 (on the ₹25,000 ceiling) is ₹51,500, so the gratuity base rises by about 47% whether or not basic is actually raised, because the add-back already counts. The monthly provision (around 4.81% of wages) rises by the same proportion. The bigger item is past service: the labour ministry's FAQs say an employee leaving on or after 21 November 2025 is paid on the last-drawn Code wage for all of their service, so the whole accrued liability is re-measured on the new base and the loss is recognised in the year of change. For a thinly profitable Indian entity, that single re-measurement can swing the result to a loss.
Yes — the wage definition is indifferent to the form of engagement. The one carve-out is apprentices engaged under the Apprentices Act, 1961, who fall outside the definition of employee; an intern employed on wages is covered. Fixed-term employees get the same wages, hours and benefits as permanent staff and earn gratuity after one year when the contract term expires. Where workers come through a manpower vendor, the principal employer is responsible for verifying that the vendor's payroll complies and is liable for EPF the contractor fails to pay. Ask vendors for the wage split on their invoices.
The codes are central law, so the wage definition and the 50% rule are identical nationwide. But labour is a concurrent subject and the rules under the codes are notified state by state, so forms, deadlines, inspection procedure and minimum wage amounts differ. Professional tax and labour welfare fund remain state levies and are untouched by this reform.
The codes have been in force since 21 November 2025 and no general transition period was notified, so treat salary paid from that date onwards as governed by the new definition. There is no general retrospective application, but remember that the Supreme Court held in 2019 (RPFC v. Vivekananda Vidyamandir) that uniformly paid special allowances already formed part of PF wages — companies with a large special-allowance component carried that exposure before the codes existed.
Yes, and most companies do exactly that: hold gross constant, raise basic, cut special allowance. That is the default scenario modelled here. Employer statutory cost still rises independently of gross, so the real CTC goes up. Absorbing that increase out of gross as well would reduce take-home twice and is where employee resistance becomes serious.
The wage definition applies to anyone in an employment relationship, including managerial staff. EPF membership is not compulsory for an "excluded employee" — someone whose wages were above the EPF wage ceiling when they would otherwise have joined and who was never a member. The ceiling was raised in September 2026, so anyone excluded on the old ceiling whose wages are now within the new one has to be enrolled. ESI applies while monthly wages on the same definition — topped up to half of total remuneration, employer PF included — are ₹21,000 or less, which on a 50% Basic structure reaches about ₹39,480 of gross (on the ₹25,000 EPF ceiling in force from 17 September 2026; ₹42,000 if the ESIC branch office tests cash pay alone). Foreign nationals are different. An "international worker" (an employee in India who does not hold an Indian passport) must join EPF whatever the salary (EPF Scheme 2026, para 9(5) read with para 2(f), as corrected by G.S.R. 703(E)), unless seconded from a country with which India has a social security agreement, such as Korea, and holding a certificate of coverage (para 2(f)(ii)(A)). Even then the wage definition and gratuity may still apply, so check each case.