---
title: "The New Labour Codes Explained: What Really Changes for Salary Structures (and What Doesn't)"
description: "The new labour codes will reshape salary structures in India, but not everything changes. Here's what HR and Finance teams actually need to act on."
canonical: "https://www.tortoise.pro/resources/blog/new-labour-code"
author: "Vardhan Koshal"
date: "2026-02-05T06:30:00+00:00"
updated: "2026-06-30T08:55:25+00:00"
category: "Employee Benefits"
image: "https://storage.zerply.ai/teams/206/blogs/199/10f00158b66f3f85-1782809718241-new-labour-code-banner.png"
---
# The New Labour Codes Explained: What Really Changes for Salary Structures (and What Doesn't)

## **Why Everyone Is Talking About the New Labour Code?**

Over the last few years, few regulatory changes have generated as much discussion, and confusion, as India’s **New Labour Codes**.

Headlines often suggest sweeping disruptions:

- Allowances capped
- Take-home salaries to fall
- CTC structures to be rewritten

But once you move past the noise, a more balanced picture emerges.

The New Labour Codes are not about reducing employee benefits. They are about **bringing clarity, standardisation, and fairness** to how wages are defined and how statutory contributions are computed.

This blog breaks down:

- What the New Labour Codes actually say
- How wages differ from CTC and basic salary
- What changes for employers and employees
- How modern salary-linked benefits can still be structured compliantly

## **The Four Labour Codes (Quick Context)**

India consolidated 29 central labour laws into four codes:

1. **Code on Wages**
2. **Industrial Relations Code**
3. **Social Security Code**
4. **Occupational Safety, Health and Working Conditions Code**

For salary structuring and payroll, the most relevant is the **Code on Wages**.

## **What Is the Core Change Under the Code on Wages?**

**The Most Important Rule (Simplified)**

*“Wages must be at least 50% of total remuneration.”*

That’s it. That single line drives most of the discussion.

But what does it actually mean?

## **Understanding “Wages” vs “CTC” vs “Allowances”**

**What is CTC?**

**CTC (Cost to Company)** is a commercial concept. It includes everything the employer spends on an employee:

- Salary
- Statutory contributions
- Benefits
- Insurance
- Variable pay

CTC itself is **not defined in law**.

**What is “Wages” under the Code?**

The Code defines **wages** as:

- Basic salary
- Dearness allowance (if applicable)
- Retaining allowance (if applicable)

It **excludes**:

- HRA
- Bonuses
- Statutory employer contributions
- Reimbursements
- Benefits in kind (up to limits)

But there’s a catch.

## **The 50% Rule Explained Clearly**

If excluded components exceed 50% of total remuneration, the excess amount is added back to wages.

Example (monthly):

|                  |            |
| ---------------- | ---------- |
| **Component**    | **Amount** |
| Basic            | ₹40,000    |
| HRA + Allowances | ₹60,000    |
| **Total**        | ₹1,00,000  |

Here, wages = ₹40,000 (40%), which is **below** the 50% threshold.

So ₹10,000 gets added back to wages to make wages = ₹50,000.

## **What This Means for Employers**

1. **PF, gratuity, and other statutory contributions**  
  
These are calculated on **wages**, not on total CTC.  
If wages increase:
  - Employer PF contribution may rise
  - Gratuity liability increases over time

This is why companies are reviewing salary structures, not because they must eliminate benefits, but because **they must balance components thoughtfully**.

2. **Allowances are not banned**

This is a common misconception.

The Code does **not** say:

- Allowances are illegal ❌
- Benefits must be removed ❌
- Flexi structures must end ❌

It only says:

Allowances + exclusions cannot exceed 50% of remuneration.  
That still leaves **significant room** for benefits and flexibility.

## **What About Benefits in Kind?**

The Code explicitly recognises **benefits provided other than cash**.

Examples:

- Cars
- Accommodation
- Insurance
- Tools required for work

However, there is an important safeguard:

**Benefits in kind can be excluded from wages up to 15% of total wages.**

This provision exists to ensure that genuine, work-related, non-cash benefits are not forced into wage computation.

## **Why This Matters for Modern Benefit Programs**

As organisations evolve, benefits are no longer just cash allowances.

They are:

- Productivity tools
- Retention levers
- Experience enhancers

Examples:

- Device leasing programs
- Car leasing
- Insurance benefits
- Employer-provided work tools

These benefits:

- Are not cash
- Are governed by policy
- Can be withdrawn or repossessed
- Are linked to employment

Which is why **they fit naturally within the framework of the New Labour Code**, when structured correctly.

## **A Practical Lens: Salary-Linked Benefits Under the New Labour Code**

Well-designed salary-linked benefits typically:

- Sit within the **allowance portion** of CTC
- Do not disturb the 50% wage floor
- Are clearly documented on payslips
- Are recoverable via payroll
- Maintain transparency in Form 16

The key is **design**, not avoidance.

## **What Changes for Employees?**

**Positives**

- Clearer wage definition
- Stronger social security base
- Better transparency in payslips

**Neutral (Not Negative)**

- Take-home does not automatically reduce
- Benefits do not disappear
- Flexibility still exists within limits

Most impacts are **structural**, not punitive.

## **What Employers Should Focus On (Instead of Worrying)**

1. **Re-evaluate salary splits**, not total compensation
2. **Maintain wage ≥ 50% of remuneration**
3. **Use benefits intentionally**, not as disguised cash
4. **Document policies clearly**
5. **Ensure payroll systems can trace deductions and benefits**

## **The Bigger Picture**

The New Labour Codes are not anti-benefit.  
They are **anti-opacity**.

They push organisations to:

- Be clear about what is salary
- Be honest about what is benefit
- Be consistent in how employees are treated

For companies that already operate transparently, the transition is evolutionary, not disruptive.

## **Closing Thought**

The New Labour Code does not eliminate flexibility.  
It **demands discipline**.

And when benefits are designed as:

- Policy-driven
- Non-cash
- Transparent
- Employment-linked

They don’t just survive under the new regime; they **fit better than ever**.

*Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Organisations should consult their professional advisors for implementation.*

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