The four Labour Codes came into force on 21 November 2025. Central rules are still being finalised and state rules vary — some states have notified final rules, others remain in draft. Verify the position for your state before relying on these figures.
Not fixed at 50% — set any figure and see the compliance effect.
Excluded allowances are 59% of total remuneration — ₹9,025/month above the 50% cap.
That amount is added back into wages, taking statutory wages to ₹49,025/month. Gratuity accrual rises by ₹5,209/year. PF itself doesn't move here because wages already exceed the ₹15,000 ceiling on this PF option — only gratuity, which has no such ceiling, is affected.
Additional annual employer cost of compliance: ₹5,209 per employee.
CTC is unchanged. Take-home falls only if employee PF rises (it may not, if wages were already above the ceiling) — but gratuity accrual, the employee's retirement benefit, always rises when there's an add-back.
Salary structure
| Component | Monthly | Annual | % CTC |
|---|---|---|---|
| Basic + DA | ₹40,000 | ₹4,80,000 | 40.0% |
| HRA | ₹20,000 | ₹2,40,000 | 20.0% |
| Other allowances | ₹38,050 | ₹4,56,600 | 38.0% |
| Statutory wages (post add-back) | ₹49,025 | ₹5,88,300 | 49.0% |
| Gross salary | ₹98,050 | ₹11,76,600 | 98.0% |
| PF — employee (12%) | ₹1,800 | ₹21,600 | 1.8% |
| PF — employer (12%) | ₹1,800 | ₹21,600 | 1.8% |
| Professional Tax | ₹200 | ₹2,400 | 0.2% |
| Gratuity accrual (4.81%) | ₹2,358 | ₹28,297 | 2.4% |
| Net take-home | ₹96,050 | ₹11,52,600 | 96.0% |
Estimated TDS (new regime): ₹0/month · (old regime): ₹13,042/month — full comparison →
The Codes require full and final settlement within a very short window after an employee's last working day — commonly cited as two working days, though some sources say 48 hours. Confirm the exact statutory wording with a CA/CS before committing to a date in writing.
Every question, answered
Answer-first pages on the 50% rule, the calculation mechanics, and worked CTC examples — each with the generator pre-filled.
The 50% rule
- Is Basic Salary Really 50% of CTC Under the Labour Codes?The live question every HR and payroll team is asking right now — and the popular answer is wrong
- New Wage Code Salary Structure: What Actually Changes in 2026A practical checklist for updating salary structures for the Labour Codes
- Employer Cost of the Labour Codes — What Actually Rises, and By How MuchThe number finance teams are actually asking payroll and HR for
Calculation mechanics
- CTC Breakup Calculator — Every Component, Correctly ComputedThe full component-by-component breakdown, on the Labour Codes' actual wage base
- HRA Exemption Calculation — The Actual FormulaA separate '50%' from the Labour Codes one — don't conflate the two
- PF Calculation on Basic Salary — the ₹15,000 Ceiling, Explained12% + 12%, on the right base — which isn't always just 'basic salary'
It's not 'basic must be 50% of CTC' — here's the actual rule
The Code on Wages, 2019 does not fix basic pay at 50% of CTC. What it actually says is that allowances EXCLUDED from the definition of 'wages' — HRA, conveyance, overtime, commission, and similar heads — must not exceed 50% of an employee's total remuneration. Where they do, the excess is added back into 'wages' for the purpose of computing PF, gratuity, ESI and bonus. Overtime is included in that 50% computation even though it is itself an excluded allowance, per MoLE's March 2026 clarification.
This distinction matters because the popular shorthand computes the wrong figure for almost every real salary structure — it silently assumes basic pay and 'wages' are the same thing, when the actual base that matters for statutory contributions is wages AFTER the add-back, not basic pay before it. A structure with basic at 30% of CTC can still be compliant if its other components don't push excluded allowances past the cap; a structure with basic at 45% can still fail if enough of the remainder sits in an excluded head.
What happens when the cap is exceeded
The add-back doesn't change what an employee is paid — their salary slip's line items and gross pay stay as declared. It changes the BASE used to compute PF, gratuity accrual, ESI and bonus. Since employer PF is itself a component of CTC, a bigger statutory wage base can mean a bigger employer PF contribution, which — with CTC fixed — leaves a smaller residual for take-home pay. Gratuity accrual, which has no PF-style ceiling, rises whenever there's an add-back, regardless of PF option chosen.
A structure where wages are already at or above 50% of remuneration needs no restructuring at all — this tool says so explicitly rather than implying a change is needed by default.
PF wage ceiling and the employer's real choice
The statutory PF wage ceiling is ₹15,000 per month — employers can either restrict PF contributions to this ceiling or voluntarily contribute on the full statutory wage base (better for the employee's retirement corpus, at a higher cost to the employer). Because of this ceiling, an add-back doesn't always increase PF — if statutory wages already exceed ₹15,000 before the add-back, PF stays flat on the ceiling option; only gratuity accrual, which has no ceiling, moves in that case.
HRA exemption logic
HRA exemption under the old tax regime is the least of: actual HRA received, rent paid minus 10% of basic, or 50% of basic (metro) / 40% of basic (non-metro). This HRA-as-percentage-of-basic convention is unrelated to the Code on Wages' 50% cap on excluded allowances — the two 50%s answer different questions and shouldn't be conflated.
Frequently asked questions
Structuring payroll across an entire client book, not just one salary? See how PracticeFlow supports CA firms.
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