How the New Labour Codes Affect Your Salary Structure & Statutory Benefits
A clear and comprehensive view for senior HR and Finance leaders.
Provident Fund (PF)
What Changed
PF contributions must now be calculated on a wage base where Basic + DA + Retaining Allowance form the core.
If excluded components like HRA, allowances, bonuses, commissions, overtime together form more than 50% of total remuneration, the excess must be added back into wages for PF calculations.
What This Means for Your Company
- Employees with low basic pay and high allowances may see PF contributions rise.
- Matching employer contributions will also increase.
- Take-home pay may shift if CTC remains unchanged.
What to Reassess
- Identify employees whose excluded components exceed 50% of total remuneration.
- Review whether PF is currently calculated on a narrow or broad salary base.
- Consider restructuring pay to balance take-home and compliance.
Gratuity
What Changed
Gratuity will now be computed on the same wage base—Basic + DA + Retaining Allowance, with excess excluded components added back if they exceed 50%.
Additionally, fixed-term employees are now eligible for pro-rata gratuity, even without completing 5 years.
What This Means for Your Company
- Higher wage base may increase gratuity liability.
- Short-term and project-based workers must now be included in gratuity planning.
What to Reassess
- Map all fixed-term, deputed and seconded employees.
- Re-estimate future gratuity provisioning using the revised wage structure.
- Refresh employment contracts and policy documents to reflect the change.
Leave Encashment
What Changed
Leave encashment values (whether annual or at separation) must also be calculated on the revised wage components.
Where remuneration includes payments in kind, up to 15% of their value may also be added to wages for the purpose of such calculations.
What This Means for Your Company
- Encashment amounts may increase, especially for employees with large excluded components.
- Short-term liabilities may rise for roles with high accumulated leave.
What to Reassess
- Ensure payroll uses the correct wage components for encashment.
- Review leave policies for annual encashment and carry-forward limits.
- Evaluate the financial impact of accumulated leave under the revised formula.
Employees' State Insurance (ESI)
What Changed
ESI contributions now also consider the same wage principles (core inclusions and conditional add-backs) when excluded components exceed 50%.
The Social Security Code also introduces a 5-year time limit for authorities to raise disputes or proceedings related to ESI dues.
What This Means for Your Company
- More employees may fall within the ESI wage ceiling.
- The new 5-year cap provides clarity and reduces open-ended exposure.
What to Reassess
- Recheck eligibility of employees under the revised wage calculation.
- Align payroll systems for correct contribution computation.
- Review older compliance matters to understand which fall within the 5-year window.
Statutory Bonus
What Changed
Bonus eligibility thresholds continue, but the classification of wages for eligibility and calculation may shift when excluded components exceed the allowed 50% limit and need to be added back.
What This Means for Your Company
- Some employees may newly qualify or move out of eligibility.
- Bonus amounts may shift depending on how remuneration is structured.
What to Reassess
- Recalculate eligibility for employees near the ₹21,000 wage mark.
- Update bonus computation sheets to align with the revised wage logic.
- Review annual budget provisions for bonus payouts.
Ready to Assess Your Labour Code Impact?
If you want a thorough review of your salary structure and statutory benefit calculations, the team at MYND can help you understand your current position and what needs adjustment.