New Wage Code Salary Structure: What Actually Changes in 2026
Under the new Wage Code, salary structures don't need a fixed component ratio — they need excluded allowances to stay within 50% of total remuneration, with PF, gratuity, ESI and bonus computed on wages after any required add-back.
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.
What's genuinely new versus what stays the same
HRA exemption rules, professional tax slabs, and the income-tax slab structure are unchanged by the Labour Codes — those are governed by separate tax legislation. What changes is the DEFINITION of 'wages' used for PF, gratuity, ESI and statutory bonus, via the 50%-cap-on-excluded-allowances mechanism in the Code on Wages. A salary structure built purely around income-tax optimisation (maximising exempt allowances) may now trigger a wages add-back that increases PF and gratuity accrual beyond what the old basic-only calculation produced.
Employment classification also changes materially: fixed-term employees now qualify for gratuity after just 1 year of service under the Code on Social Security, instead of the 5 years required for permanent employees. Full and final settlement timelines have also tightened — sources describe a window of two working days or 48 hours after the last working day, though the exact wording needs confirmation before quoting it to a client.
What to actually check in an existing salary structure
Start with the ratio of excluded allowances (HRA + conveyance + special allowance + any performance/overtime component) to total remuneration. If it's above 50%, compute the add-back and check its effect on employer PF cost and gratuity accrual — both of which affect budget, not just compliance risk. Then check employment classification: any fixed-term or contract staff should be flagged for the 1-year gratuity rule rather than assumed to fall under the 5-year permanent-employee rule.
Frequently asked questions
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Why this matters
Getting the wage base wrong for one client is a correction; getting it wrong across a payroll book is a liability — PracticeFlow keeps every client's compliance status visible in one place.
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Restructuring payroll for the Labour Codes across 60 clients? PracticeFlow tracks every client's compliance status, assigns the review work, and keeps a firm-wide audit trail — so nothing gets missed.
See PracticeFlow for CA FirmsEstimate for planning purposes, not legal or tax advice — always confirm with a CA before restructuring a client's payroll.