The new labour code that was announced in 2025 is not just a technical HR update. It changes how your pay is structured, how much you actually take home each month, and how quickly you build long-term benefits like PF and gratuity. Under the unified labour codes 2025, the government has tightened the definition of wages and pushed employers to put more of their CTC into long-term social security instead of loose allowances and reimbursements.
What has actually changed under the new labour law
The headline change in the new labour law is the wage definition. “Wages” now have a common definition across codes, and allowances are effectively capped at 50% of total pay. In practice, this pushes your basic salary up so that at least half your CTC is treated as wages
Because PF, ESI, bonus and gratuity are all calculated on this wage base, a higher basic salary automatically means
- Bigger PF deductions and matching contributions
- Higher gratuity accrual over time
- A slightly lower cash-in-hand figure for many employees with mid-range and high-range CTCs
So, the new labour legislation is deliberately shifting money away from flexible allowances towards compulsory long-term benefits.
Take-home Amount vs PF and Gratuity
Multiple analyses of the new labour law show that employees with CTC structures loaded with special allowances and variable pay might feel the biggest change. As more of the CTC is pushed into basic salary, PF and gratuity contributions will rise, so the in-hand component contracts in the short term.
The Labour Ministry has also clarified that employees whose PF is already calculated on the statutory ceiling (₹15,000 wage base) will see little or no difference in take-home amounts. The bigger hit is for those whose PF was earlier calculated on a much lower declared wage than their real CTC.
In other words, the new labour code cleans up aggressive structuring and forces employers to acknowledge the real wage for social security. You lose some flexibility now but gain in retirement savings and terminal benefits.
New Gratuity rules
Alongside wage changes, the labour codes of 2025 elevate gratuity. The key update you need to know is that fixed-term employees become eligible for gratuity after just one year of continuous service, down from the old five-year requirement.
Other important points under the new labour legislation on gratuity:
- Contract and fixed-term workers are now treated much closer to permanent employees for gratuity benefits
- Gratuity is calculated on the expanded wage base, which includes basic salary, dearness allowance and retaining allowance, so payouts are higher than old, low-basic structures
If you used to switch jobs frequently on contracts, the 1-year eligibility rule is a direct gain for you. A series of short stints no longer means zero gratuity.
How your salary structure changes in real life
By using a salary calculator, one can check how CTCs of ₹7 lakh, ₹10 lakh, and ₹15 lakh, get reshaped under the new labour law. The pattern is the same across levels of pay. Wages must be at least 50% of CTC, so that basic salary and DA moves up, and “creative” allowances get squeezed
If your employer gives you a revised CTC sheet, plug it into any updated online salary calculator that reflects the new labour code assumptions. This can let you see the exact impact on in-hand pay, PF build-up, and gratuity accrual, rather than relying on vague HR explanations.
What this means for PF, PPF and your long-term savings mix
You should look at PF as one pillar and decide whether to complement it with voluntary PPF investments. A higher PF base may allow you to tweak how much you lock into other long-term fixed-income instruments. Using a PPF calculator can helps you compare PF and PPF side by side, estimate maturity values, and determine if you still need the same PPF contribution you used before the code change.
The key is to avoid blindly over-concentrating everything in debt-style retirement products simply because the new labour law pushed PF up. Balance PF and PPF with equity mutual funds so that your overall portfolio still has growth potential over 20–30 years.
Do not ignore life insurance
Higher PF and richer gratuity under the new labour code do not replace the need for protection. Those benefits mainly support retirement and exit scenarios, not sudden loss of income due to death. You still need adequate life insurance cover, especially if your EMI and family goals depend on your salary.
Revisit your life insurance sum assured now that your official basic salary value and wage definition have changed. Lenders and financial planners often look at wage-linked numbers. A better-defined, higher base for wages can make it easier to justify a larger term cover when you run your numbers.
What employees should do now
Instead of just worrying about a lower take-home, treat the new labour legislation as a trigger to update your personal finance goals.
- Ask your designated HR executive for a clear “before vs after” CTC break-up on the basis of the new labour code
- Check what percentage of your CTC is now basic salary, and how PF and gratuity are being calculated
- Run your payslip through a salary calculator and quantify the change in your monthly budget
- Log into EPFO and track whether higher contributions are reflected properly in your passbook
- Use a PPF calculator to reassess whether you should increase, reduce or keep your PPF contribution unchanged in light of higher PF
- Review your life insurance cover to ensure it still matches your revised wage, debt and future obligations
This way you are not just a passive victim of policy change, but an active user of the new structure.
The new labour code is designed to stop ultra-low basic salary structures and force employers to fund real social security instead of padding CTC with allowances. For some employees, that feels like a pay cut because less money lands in the bank each month. For many others, especially those already on the statutory PF ceiling, the change is minimal.
If you use the tools available to you – a modern salary calculator to understand your pay and a PPF calculator to compare PF and PPF, the labour codes of 2025 can become an opportunity to lock in stronger long-term benefits. The rules have changed anyway. So, the real question is whether you adjust your planning and come out ahead or ignore the shift and let the system decide your financial future for you.
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