India Inc. is actively assessing the implications of the newly implemented Labour Codes, particularly focusing on the potential decrease in employees' take-home pay. Effective November 21, 2025, these codes consolidate 29 existing central labor laws into four comprehensive codes. The key areas of focus for companies include compensation structures, finance, and human resources policies.

Impact on Salary Structures

The new labor codes are expected to impact salary structures due to a revised definition of "wages". The codes stipulate that basic pay, dearness allowance, and retaining allowance must constitute at least 50% of an employee's total remuneration. This change is designed to prevent companies from keeping basic salaries low and increasing allowances to reduce their Provident Fund (PF) and gratuity obligations.

Potential for Lower Take-Home Pay

The increase in the wage base for calculating statutory deductions like PF and gratuity could lead to a reduction in take-home pay for employees. If employers choose to maintain the same Cost-to-Company (CTC) and increase the wage portion to meet the 50% threshold, the increased PF deductions would directly impact the net salary. However, the actual impact on take-home pay will depend on how employers restructure their salary packages. Some companies may choose to increase the overall CTC to offset the increased deductions, thereby maintaining the current take-home pay levels.

Increased Social Security Benefits

While take-home pay may potentially decrease, the new codes are expected to enhance retirement security through higher gratuity and PF contributions. The standardization of wage definitions across labor codes ensures uniformity in computing social security benefits.

Employer Strategies and Considerations

Companies are advised to review their job descriptions, workforce classifications, and hiring models to align with the new definitions of "employee" and "worker". They also need to reassess employment contracts, including fixed-term arrangements, and analyze the impact on compensation structures and payroll systems. Furthermore, employers should assess the financial impact of enhanced employee benefits on the organization and update HR policies accordingly. EY India Partner, Puneet Gupta, noted that the codes bring clarity, digitization, and consistency across compliance requirements, unlike earlier laws that had multiple interpretations.

Benefits for Workers

The new labor codes aim to provide stronger protection and social security to workers across various sectors, including MSMEs, textiles, IT, media, and mining. The codes also extend benefits to gig workers and contract workers, who were previously excluded from many social security schemes. Key benefits for workers include:

• Minimum Wages: A universal minimum wage applies to employees in both organized and unorganized sectors.
• Gender Equality: The codes promote gender equality by preventing discrimination in hiring, wages, and employment terms.
• Timely Wages: Employers are required to issue wage slips electronically or in physical form, providing documentary proof of employment, wages, and deductions.
• Fixed-Term Employees: Fixed-term employees are entitled to equal pay, benefits, and gratuity after one year of service.
• Contract Workers: Contract workers are guaranteed social security, health benefits, and annual medical checks.

Industry Reactions and Expert Opinions

Industry representatives believe that the new labor codes will promote job creation and expand the social security net. However, some experts caution that the IT sector, in particular, faces widespread misuse of contract norms, and careful enforcement of the codes is crucial to prevent companies from bypassing obligations. Alay Razvi, Managing Partner at Accord Juris, clarified that the changes do not require employers to increase the basic salary paid to workers but rather influence how retirement and other statutory benefits are computed.

Overall, the implementation of the new labor codes represents a significant shift in India's labor laws, with the potential to impact both employers and employees. While there may be a short-term impact on take-home pay for some employees, the long-term benefits of enhanced social security and improved worker welfare are expected to outweigh the drawbacks.