Most of the noise around the labour codes is about things that have not changed for you. This page sticks to the one change that reaches a payslip, the wages rule, shows it with real numbers, and says plainly which parts are settled and which are not.
The Rule In Plain Words
Wages are basic pay plus dearness allowance and retaining allowance. But they can never be less than half of your total pay.
Your CTC is split into parts. Some of those parts, like basic pay, count as wages. Others, like house rent allowance and conveyance, do not. The Code on Wages adds a test on top. If the parts that do not count come to more than 50% of your total pay, the excess is added back to wages.
Why it matters: gratuity is worked out on wages, as 15 days of wages for every year of service, which the calculator treats as about 57.69% of annual wages. Before, a company could keep basic pay low and gratuity small. Now, if basic is below half, gratuity is worked out on half of pay anyway.
See It On A Bar
Each bar is a month of fixed pay. Basic is in green. The hatched part is what the rule adds. The black line is half.
Fixed pay for a month on a 12 LPA CTC. The line is half of it.
-
Basic at 30%Wages counted: ₹50,000
- Basic
- ₹30,000
- Added back
- ₹20,000
- Gratuity a year
- ₹28,846
- In your bank
- ₹91,949
-
Basic at 35%Wages counted: ₹50,000
- Basic
- ₹35,000
- Added back
- ₹15,000
- Gratuity a year
- ₹28,846
- In your bank
- ₹91,949
-
Basic at 40%Wages counted: ₹50,000
- Basic
- ₹40,000
- Added back
- ₹10,000
- Gratuity a year
- ₹28,846
- In your bank
- ₹91,949
-
Basic at 45%Wages counted: ₹50,000
- Basic
- ₹45,000
- Added back
- ₹5,000
- Gratuity a year
- ₹28,846
- In your bank
- ₹91,949
-
Basic at 50%Wages counted: ₹50,000
- Basic
- ₹50,000
- Added back
- —
- Gratuity a year
- ₹28,846
- In your bank
- ₹91,949
Basic at 50% reaches the line on its own, so nothing is added. At every lower share, the hatched part fills the gap up to the line. Look at the 30% and 35% bars: both end at the same line. Wages are counted at the same amount in both, because the rule fixes the floor and the exact basic below it no longer matters for gratuity.
What It Does To Gratuity And Your Month
More of the CTC goes to gratuity, so there is less to pay you each month. The table shows by how much, for a 12 lakh CTC.
| Basic pay is | Wages counted a month | Gratuity a year, before → now | In your bank a month, before → now | Change |
|---|---|---|---|---|
| 30% of fixed pay | ₹50,000 | ₹17,308 → ₹28,846 | ₹92,911 → ₹91,949 | −₹962 |
| 35% of fixed pay | ₹50,000 | ₹20,192 → ₹28,846 | ₹92,670 → ₹91,949 | −₹721 |
| 40% of fixed pay | ₹50,000 | ₹23,077 → ₹28,846 | ₹92,430 → ₹91,949 | −₹481 |
| 45% of fixed pay | ₹50,000 | ₹25,962 → ₹28,846 | ₹92,189 → ₹91,949 | −₹240 |
| 50% of fixed pay | ₹50,000 | ₹28,846 → ₹28,846 | ₹91,949 → ₹91,949 | ₹0 |
Each row compares the same CTC structured before the rule and now. Gratuity set aside rises as basic falls below half. That money comes out of the same CTC, so the monthly pay falls by the difference. At 35% basic, wages are counted at ₹50,000 a month even though basic is ₹35,000, and the monthly pay is ₹721 lower.
The money is not lost. Gratuity is yours when you leave after five years of service. But if you leave sooner you usually get none of it, so for a person who changes jobs often, it is a real cost today for a payout that may not arrive.
What The Rule Does Not Change
Several things people attribute to the labour codes are not touched by the wages rule.
- Income tax. It is worked out on your gross salary exactly as before.
- Your gross salary. The rule changes how gratuity is worked out, not what you are paid. Your CTC is unchanged.
- HRA. It is still a separate allowance, and still only tax-free in the old regime.
- Variable pay. Annual performance-based incentives are not treated as wages, according to the Ministry’s FAQs.
What Is Settled, And What Is Not
Some of this has a clear answer. Some is still open, and anyone who tells you otherwise is guessing.
Settled
- The Code on Wages is in force from 21 November 2025, and the wages definition applies from that date onwards.
- Gratuity is worked out on wages as the new definition describes them. For service before the date, the Ministry’s FAQs describe a mixed calculation based on the wage last drawn at exit.
Not settled
- Whether provident fund will be worked out on the same wages definition. The EPF Scheme works PF on basic pay, and applying the 50% rule to PF is a question employers and EPFO are still working through. This site’s calculator uses basic by default and offers the labour-code wages as a setting.
- How an employer reads “total pay”. The calculator measures the half against fixed pay, the CTC without variable pay. Your employer’s payroll may draw the line differently.
The Ministry’s FAQs are guidance, not a notification, and they are summarised here from secondary sources. Check the exact treatment with your employer.
Two Dates People Mix Up
Two changes landed within a year of each other. They are separate, and only one is about wages.
-
The wages rule starts
Wages for gratuity can no longer be less than 50% of total pay. This is the change this guide is about.
-
The PF ceiling rises
The monthly PF wage ceiling goes from ₹15,000 to ₹25,000. A separate rule, often mixed up with the wages rule.
The PF ceiling change affects how much PF is deducted if your employer works PF on the ceiling. If your basic pay is above the ceiling, it moves your monthly pay by a fixed amount, whatever your basic share. The guide to in-hand salary shows that change on a payslip. The wages rule affects gratuity and depends on your basic share. If your payslip changed, work out which of the two it was before you ask.
What To Ask HR
Five questions turn this page into something your employer can answer.
- What is my basic pay as a share of my fixed pay? If it is below half, the rule applies to you.
- Is my gratuity worked out on basic pay or on the new wages definition? The answer tells you how much of your CTC is set aside for it.
- Has my pay structure been revised since 21 November 2025? If yes, ask what changed in the monthly pay and in the gratuity.
- How is my PF worked out: on the ₹25,000 ceiling, or on my full basic? And is the employer’s share inside my CTC?
- How much of my CTC is variable? Annual incentives are not wages, so they do not feed gratuity or any of this.
The CTC calculator takes your CTC and basic share and shows the labour-code check for your own numbers, with the amount it costs you each month.
How This Page Was Checked
Every figure on this page comes from the same calculation engine that runs the calculator, so the page and the calculator cannot disagree. The rules behind it, with the source and check date for each, are on the methodology page. If a number looks wrong, tell us and we will check it.