With the government’s notification, the four labour codes, rationalizing, simplifying, and consolidating 29 old law, came into effect on November 21, 2025, marking one of the biggest reforms in India’s work environment in decades. These codes will be rolled out across industries in a calibrated manner.
One of the major changes is the new uniform definition of ‘wages’. Under the codes, statutory social security benefits such as Provident Fund, Gratuity, and ESI will now be calculated based on this standard definition. This requires companies to rework their CTC (Cost-to-Company) structures for employees.
Experts agree that the move could lead to higher contributions by both employers and employees toward social security. However, employees may see a slight reduction in take-home pay because statutory deductions may rise while the overall CTC remains unchanged.
The new labour codes require that all forms of remuneration—whether in cash, kind, or allowances—be treated as wages, with only specific exclusions permitted. These exclusions (other than exit-related payments like gratuity) cannot exceed 50% of total remuneration. “This broader definition will lead to higher contributions by both employers and employees,” Divya Baweja, Partner at Deloitte India, told News18. “This could mean a small reduction in take-home pay if the CTC remains unchanged,” she added.
Sonal Arora, Country Manager, GI Group Holding, also noted that take-home pay may fall because of higher contributions toward social security schemes like PF. “Many organizations will need to re-evaluate their CTC composition, moving away from heavily allowance-driven structures toward a more balanced, wage-centric model,” she said.
The new regulatory requirements will force employers to reassess their compensation frameworks, especially companies that previously structured pay with large non-wage allowances. “Given the magnitude of these changes, organisations must prepare proactively,” said Rahul Goyal, Managing Director, ADP India and Southeast Asia. This includes modelling cost impacts, updating policies and employment contracts, and ensuring HR, finance, and payroll systems are aligned.
However, employees may see better retirement benefits over time. Pooja Ramchandani, Partner at Shardul Amarchand Mangaldas & Co., told News18 that the new wage definition will directly affect how gratuity is calculated. “This will result in an enhanced retirement benefit for employees,” she said.
Ramchandani added that other benefits such as provident fund, bonus, ESI, and leave encashment may not see major changes, as the current legal framework already required inclusion of uniform allowances in the computation formula. “That said, CTC structures are likely to be recalibrated to align with the requirements of the new definition,” she added.