The short version

  • The four codes are live from 21 November 2025. The Central Rules followed in early May 2026. Most state rules are still being notified, so there is no single national deadline.

  • The definition of wages is now the same across all four codes. Excluded allowances cannot exceed half of pay, so basic plus dearness allowance has to reach about 50 per cent. It is a cap on allowances, not a rule that basic must be 50 per cent.

  • That lifts provident fund and gratuity. For a Rs 30,000 salary moved from 35 to 50 per cent basic, employer cost rises about Rs 800 a month and take-home falls about Rs 540.

  • Appointment letters are compulsory for every employee, final wages are due in two working days, and overtime is twice the ordinary rate.

  • The provident fund wage ceiling is still Rs 15,000. The Rs 25,000 figure is proposed, not law. Do not reprogram payroll for it yet.

The way you build a salary, issue an appointment letter and settle a final payment changed on 21 November 2025, whether or not your own state has finished writing its rules. Here is what each change says and where the position actually stands.

What changed on 21 November 2025

The government brought all four codes into force on the same day: 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. Together they replace 29 central labour Acts. The government's own figures are 1,228 sections reduced to 480, returns from 31 to 1, forms from 181 to 73, and registers from 84 to 8.

The final Central Rules under all four codes were notified in early May 2026. Those Central Rules apply where the Centre is the appropriate government, for example banking, telecom, mines and central public sector units. Every other employer waits on state rules, and labour is a concurrent subject, so each state frames its own. Some states have final rules, most have draft rules, and at least one has none.

So the codes are law, the machinery is being built state by state, and there is no single national compliance deadline. Prepare now, do not wait for a date.

The new definition of wages

The heavy change sits in Section 2(y) of the Code on Wages, and the same definition runs through all four codes. Wages means basic pay, dearness allowance and any retaining allowance. A list is then excluded: house rent allowance, conveyance, overtime, commission, the employer's provident fund contribution, and statutory bonus, among others.

The part the aggregators get wrong is the 50 per cent rule. The law does not say basic must be 50 per cent. It says the excluded components together cannot exceed one half of total remuneration, and if they do, the excess is deemed to be wages and added back. The practical effect is that basic plus dearness allowance lands at roughly half of pay, but the mechanism is an add-back of excess allowances, not a fixed ratio. Because provident fund, gratuity, bonus and leave encashment are all computed on wages, a larger wages base raises each of them.

A worked example

Take an employee on Rs 30,000 a month, structured the old way with basic at 35 per cent, so Rs 10,500, and the rest in allowances.

ItemOld, basic 35 per centNew, basic 50 per centBasic plus dearness allowanceRs 10,500Rs 15,000Employer provident fund, 12 per cent of basic, capped at Rs 15,000Rs 1,260Rs 1,800Gratuity accrued per monthabout Rs 505about Rs 721

Keeping gross pay the same, employer statutory cost rises about Rs 800 a month, close to Rs 9,600 a year for this one employee, and take-home falls about Rs 540 a month because the employee's own provident fund deduction went up. That Rs 540 is not lost. It lands in the employee's retirement corpus, alongside the employer's extra contribution.

One point most articles skip. If basic was already above Rs 15,000, provident fund is capped and does not rise when you lift basic. Gratuity is not capped, so it still climbs. Restructuring raises provident fund and gratuity for lower-paid staff, and mostly gratuity for higher-paid staff.

Four claims that are wrong

Basic must be exactly 50 per cent. It is a cap on excluded allowances, with any excess added back to wages. Same destination, different mechanism, and the difference matters when you design the structure.

The codes replaced state Shops and Establishments Acts. They did not. The codes repealed 29 central Acts. Your state Shops and Establishments Act is state law and stays live. Registration overlaps are being cleaned up state by state, Maharashtra first, but the Act still governs matters such as leave where it gives a better benefit.

Gratuity is now payable to everyone after one year. Only fixed-term employees get pro-rata gratuity after one year. Permanent staff still need five years, under Section 53 of the Code on Social Security.

The provident fund wage ceiling has been raised to Rs 21,000 or Rs 25,000. It is still Rs 15,000, unchanged since 2014. A hike to Rs 25,000 has been cleared by the Finance Ministry but is not notified and not in force. Confirm on the official gazette before you treat it as law.

The duties that are not about salary

Three operational changes catch employers who only watched the salary story. Appointment letters are now mandatory for every employee, under Section 6 of the OSH Code, including staff who have only ever had a verbal arrangement. Final wages on resignation, dismissal or closure must be paid within two working days, under Section 17(2) of the Code on Wages. That clause covers wages, not gratuity and not provident fund, which run on their own separate clocks. Overtime is payable at not less than twice the ordinary rate of wages, under Section 14.

Penalties sit in Section 54 of the Code on Wages. Underpaying an employee can draw a fine of up to Rs 50,000, and a repeat within five years can bring imprisonment of up to three months, a fine of up to Rs 1,00,000, or both. The inspection model has moved toward an inspector-cum-facilitator who must usually give a written chance to fix a technical lapse before prosecution, which is a real softening for firms acting in good faith.

Does this reach small companies

Yes, in two tiers. Some duties bind every employer at any headcount: minimum and floor wages, appointment letters, timely pay, the wage definition and the two-day final settlement. Others switch on at a threshold: provident fund at 20 employees, which the government confirmed has not been cut to 10 or 15, and both employees' state insurance and gratuity at 10. A five-person startup still issues appointment letters and structures pay correctly. It does not yet owe provident fund.

What to actually do

Run every employee through the 50 per cent test before your next payroll run, and separate two groups: those whose provident fund will rise, and those whose provident fund is already capped but whose gratuity and leave encashment will climb quietly. The second group is the one that gets underprovisioned, because nothing changes on the payslip while the liability grows.

  • Do not fix the cost by silently cutting gross pay. Take-home already dips when basic rises, and staff should hear that from you, not discover it.

  • Do not fix the cost by silently cutting gross pay. Take-home already dips when basic rises, and staff should hear that from you, not discover it.

  • Time the change to the financial-year boundary, because most Indian employers switch salary structures then and a mid-year change is harder to absorb.

  • Map each obligation to the state where the employee actually works, not to your head office, because state rules are arriving unevenly

  • Do not reprogram payroll for the Rs 25,000 provident fund ceiling. It is not law yet

Currency of this article

Sections, rates and dates verified against the bare Acts, the Ministry of Labour handbook and the government notifications on 1 September 2026. State rule status and the provident fund ceiling proposal move without notice and should be re-checked before you rely on them.

Disclaimer

This article is general information about Indian labour law, not legal or tax advice, and no professional relationship arises from reading it. Applicability depends on your entity, workforce, states of operation and the terms of your contracts. Confirm your position with qualified payroll, tax and legal advisers before acting.

A disclosure. NineRole builds payroll and HRMS software, so we have an interest in employers finding this manageable. That is also why we would rather point you to the sections than ask you to trust the summary.

Sources

Statutes

Government notifications and guidance

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