New Labour Codes 2025: How PF, Gratuity & Salary Structure Will Change

The implementation of India’s four new Labour Codes marks a major reform in the country’s employment and social security landscape. With 29 labour laws consolidated into a single simplified framework, the new regime is designed to enhance employee protection, ensure uniform wage standards, and support the formalisation of workplaces.

A key highlight of these changes is the revised definition of “wages,” which directly affects Provident Fund (PF) contributions, gratuity payouts, take-home salary, and income tax calculations. The new rules particularly affect private-sector employees, fixed-term workers, and organisations with significant variable pay structures.

Major Reform  Under Labour Codes 2025

1. Uniform Definition of Wages (Across All 4 Codes)

• Basic Pay + Dearness Allowance + Retaining Allowance must constitute a minimum of 50% of total remuneration (CTC).
• Designed to prevent companies from lowering basic salary to reduce statutory payouts.
• Direct impact on PF, gratuity, and other social security benefits.

2. Higher Provident Fund (PF) Contribution

• PF contribution continues at 12% of wages.
• Since “wages” form a higher proportion of CTC, PF deductions for both employer and employee rise.
• Leads to a lower monthly take-home salary but a significantly larger retirement corpus.

3. Increased Gratuity Payout

• A higher wage base means a higher final gratuity amount at separation, retirement or resignation.
• Applies to all employees covered under the Code on Social Security, 2020.

Impact on Take-Home Salary

• The Cost To Company(CTC) structure is largely unchanged, but allowances must be realigned to meet the 50% wage rule.
• This increases statutory deductions, reducing many employees’ net monthly salary.
• Long-term benefits increase due to higher PF and gratuity accumulation.

New Gratuity Rules (2025)

• Fixed-Term Employees (FTEs) are now eligible for pro-rata gratuity after 1 year of service.
• Earlier, the minimum requirement was 5 continuous years.
• Ensures parity between permanent staff and FTEs in terms of social security benefits.
• For permanent employees, the 5-year service condition remains unchanged.

Applicability to Private Companies

• If the establishment employs 10 or more workers, gratuity is compulsory.
• This coverage extended to gig and platform workers, with aggregators contributing to a dedicated social security fund.

Gratuity and Income Tax

• The tax-free gratuity limit remains at ₹20 lakh for private-sector employees.
• Amount exceeding this limit is taxable as per the applicable slab.
• Government employees continue to enjoy full tax exemption on gratuity.

Conclusion

The Labour Codes 2025 bring a more transparent and uniform wage structure, enhancing long-term social security for employees while reshaping salary components across industries. While take-home pay may temporarily reduce due to higher statutory deductions, the reforms strengthen retirement savings, extend benefits to gig workers, and create a more equitable workplace framework. Overall, the new codes signal a transformative shift in India’s labour and social security regime.