The Ministry of Labour has released draft rules for new labour codes, opening them for public consultation for 45 days (30 days for Industrial Relations Rules). Existing rules will remain in effect during the transition, provided they align with the new Codes.
New Labour Codes: What’s Changing
These new codes represent a significant overhaul of labor regulations, impacting calculations for provident fund contributions, wages, and gratuity, among other measures. A key change is a standardized definition of “wages” applicable across all four Labour Codes, encompassing basic pay, dearness allowance, and retaining allowance, but capping allowances at 50% of total remuneration.
According to Puneet Gupta, Partner, People Advisory Services-Tax, EY India, the draft rules provide much-needed clarity for employers. Specifically, the Code on Social Security Rules clarifies that gratuity will be calculated based on “wages” last drawn, excluding certain components. The Occupational Safety, Health and Working Conditions Rules also introduce provisions for overtime pay – double wages for work exceeding 48 hours per week – and ensure workers receive substituted rest days.
Other provisions include mandatory annual medical check-ups for employees over 40 in specific sectors, creche allowances of at least Rs 500 per child where facilities aren’t provided, and journey allowances for inter-state migrant workers.
The government has also published a list of Frequently Asked Questions to address common concerns regarding the new labour codes.
Frequently Asked Questions
What does the term “wages” mean?
The definition of “Wages” covers all remuneration, including salaries, allowances, basic pay, dearness allowance, and retaining allowance. If allowances (excluding gratuity and retrenchment compensation) exceed 50% of total remuneration, the excess amount will be added to wages for statutory calculations.
What is the 50% rule for allowances?
If the total value of allowances and benefits, excluding gratuity and retrenchment compensation, exceeds 50% of an employee’s total remuneration, the amount exceeding that limit will be added back to their wages for statutory calculations.
When will gratuity be applicable?
Gratuity will be applicable starting November 21, 2025, the date the Code is enforced. Establishments may begin making provisions for this according to accounting norms.
As the draft rules move through the public consultation phase, it remains possible that adjustments will be made based on feedback received from stakeholders. The final implementation of these codes could significantly reshape the landscape of labor relations and employee compensation.
How will these changes to labor codes impact your organization or personal financial planning?
