Your in-hand salary may not change under the new labour code yet, know why

employee’s salary slip or benefits package. Many of the important concepts under the new labour code framework are already relevant, especially those linked to the revised definition of “wages”.

But for salaried employees, the impact is often indirect. According to Rastogi, it may show up only when certain payments are made, such as gratuity, leave encashment, notice pay or other terminal dues, rather than as an instant increase in monthly take-home pay.

At the same time, some practical effects are already noticeable, such as in Employees State Insurance (ESI).

According to Rastogi, earlier, ESI was applied from the perspective of gross pay.

Under the new framework, because the definition of “wages” is different, some employees who weren’t previous;y included, might now fall under the threshold. Rastogi points out this could lead to more employees in some establishments being covered by ESI and receiving social security benefits.

Rastogi says another reason for the delay in change in in-hand salary is because many employers are treating this as a transition exercise. Employers are reviewing salary structures, payroll systems, contracts and HR policies, and in many cases, they are aligning any major changes with appraisal cycles or annual compensation revisions.

Rastogi says: “So, the delay is often more about implementation strategy and impact assessment than about the labour codes having no effect.”

In short, the benefits are not entirely absent. In many cases, they are already taking effect, but not in a way that is immediately visible to salaried employees.

If the labour codes were notified by state governments, your salary may have changed like this

Rastogi says that the new labour code does not require employers to restructure wages and only asks them to compute ‘wages’ as a minimum of 50% of the remuneration (aggregate of included and excluded components under the wage definition), if the included component of wage is less than 50% of the remuneration.

This means, if it is more than 50%, the actual wages have to be considered.

CTC Rs 20 lakh

Source: Khaitan & Co

In this example, the ‘wages’ portion of the remuneration (as per the labour codes) comprises basic salary, medical allowance and education allowance(since all ordinarily payable allowances other than those expressly excluded are covered in the definition).

Since this portion totals up to Rs 9 lakh which is less than 50% of the overall remuneration or Rs 10 lakh, the expressly excluded components (i.e., house rent allowance and conveyance allowance) will be added back to the ‘wages’ bucket only to the extent that the ‘wages’ bucket becomes 50% of the total remuneration.

Therefore, in the present example, the annual ‘wages’ of the employee would be treated as Rs 10 lakh (including Rs 1 lakh of the expressly excluded components) and not Rs 9 lakh for the purpose of making various computations such as leave encashment and gratuity

CTC Rs 15 lakh

Source: Khaitan & Co

In the present example, the ‘wages’ portion of the remuneration comprises basic salary, medical allowance and education allowance Since this portion is more than 50% of the overall remuneration, the expressly excluded components (i.e., HRA and conveyance allowance) and the included components from ‘wage’ standpoint, no money needs to be added back to the ‘wage’ bucket and thus the wage is to be be considered on actual amount.

Under the erstwhile law, there was no uniform definition of the term ‘wage’ for all the labour laws and had to be assessed and analysed under each of the labour laws for assessing the eligibility and computation methodology.

Why have most state governments not notified the labour codes yet?

Some states such as Gujarat, Bihar and Arunachal Pradesh have moved further ahead in the labour code transition by amending their own labour laws to the extent that they are already similar to the new labour codes.

Meher Mehta, Partner, S&R Associates, told ET Wealth Online that the lag in the practical implementation of the labour codes is primarily due to three reasons:’

1. delay in notification of rules by the state governments;
2. lack of guidance on the manner of transition from the existing labour laws to the new Labour Codes; and
3. on-ground infrastructure has not yet caught up to the level of sophistication, unification and ease of compliance contemplated by the Labour Codes.

According to Mehta, the four labour codes are effective from November 21, 2025. However, since the labour codes were brought into effect, before either the central or state rules were notified (which continue to be in draft form), the labour codes have to be read with the rules effective under the earlier labour law regime to the extent they are not inconsistent.

Moreover, there have been no indicative timelines communicated by the government on the expected date of coming into force of the new central and state rules. According to Mehta, the primary hurdle remains the fact that each state has its own practical and factual considerations while preparing and notifying the draft rules.

Mehta says: “Opposition to the labour codes by various factions in states could be cited as a reason for the lack of rollout of the rules under the labour codes.”

Should employees renegotiate their CTC once the labour codes are implemented if it results in a lower take home for them?

Mehta from S&R associates says that it will be important for companies to re-assess their pay structures to ensure that any changes due to compliance with law does not adversely affect the employees’ take-home salary, since that will have a direct impact on employee morale.

According to Mehta, it is important to clarify that the key factor that is expected to affect take-home salary of employees is the provident fund contribution. This is because provident fund contributions are calculated as a percentage of a revised definition of wages, which may increase the contribution and therefore have an impact on the take home salary.

However, note that the wage ceiling on provident fund contributions continue to remain at Rs 15,000. Accordingly, only if an employee’s wages are less than Rs 15,000 and less than 50% of their total remuneration, will there be an impact on the take-home salary of the employee.

Mehta says that to counteract this, any additional voluntary contribution to provident funds by employers can be modified to ensure that the take-home salary of employees is not affected.