The landscape of employment in India has undergone a massive shift following the implementation of the Four Labour Codes, effective as of late 2025 and 2026. These reforms consolidate 29 outdated laws into four simplified categories: Wages, Social Security, Industrial Relations, and Occupational Safety.
If you are an employee or an employer, these rules directly change your monthly budget and long-term savings. Here is a breakdown of the most critical changes.
1. The “50% Wage Rule”: Impact on Your Salary
The most talked-about change is the new definition of “wages.” Under the Code on Wages, your Basic Pay + Dearness Allowance (DA) must constitute at least 50% of your total Cost to Company (CTC).
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Old System: Companies often kept “Basic Pay” low (around 30–40%) and padded the rest with allowances (HRA, Travel, etc.) to reduce their contribution to PF and Gratuity.
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New System: If your allowances exceed 50% of your total pay, the excess amount is now added back to your “Basic Wage” for calculating statutory benefits.
The Result: Your monthly take-home salary might decrease because your PF and Gratuity deductions (which are percentages of your basic pay) will increase. However, your retirement corpus will grow significantly.
New Salary & Labour Rules
2. Changes in Gratuity Rules
The new codes bring a major win for contract and short-term workers:
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Fixed-Term Employees: You are now eligible for gratuity after completing just one year of service, instead of the traditional five-year requirement.
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Pro-rata Payment: Gratuity for these employees will be calculated on a pro-rata basis based on the tenure of their contract.
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Higher Payouts: Since the basic wage component is now higher (the 50% rule), the final gratuity amount you receive upon leaving a job will be substantially larger.
3. Working Hours and the “4-Day Work Week”
The government has introduced flexibility in how the 48-hour weekly work limit is met.
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Flexible Shifts: Employers can now implement a 4-day work week (12 hours per day) or a 5-day work week (approx. 10 hours per day), provided the total does not exceed 48 hours a week.
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Overtime: Any work done beyond the prescribed hours must be paid at double the normal wage rate.
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Night Shifts for Women: Women are now permitted to work night shifts in all sectors, provided they give explicit consent and the employer ensures mandatory safety and transport.
4. Full and Final (F&F) Settlement
To protect employees from long waiting periods after resigning or being terminated, the new rules mandate that the full and final settlement of wages must be completed within two working days of an employee’s last day. New Salary & Labour Rules
Summary Table: Old vs. New Rules
| Feature | Old Rules | New Labour Codes (2026) |
| Basic Salary | No fixed percentage of CTC | Must be at least 50% of CTC |
| Take-home Pay | Usually higher | Likely lower due to higher PF/Gratuity |
| Gratuity Eligibility | After 5 years | 1 year (for Fixed-term employees) |
| Overtime Pay | Varies by state | Mandatory Double the normal wage |
| F&F Settlement | 30 to 90 days (common practice) | Within 2 working days |