Salary Structure as per New Labour Code: 50% Basic Rule and HR Guide

Since the Labour Codes came into force, "new basic salary rule" and "new salary structure 2026" have become some of the fastest-rising payroll searches in India. This guide is for HR and payroll teams deciding whether and how to restructure salaries: what the rule actually requires, how to calculate the minimum basic, the restructuring options with a worked example, the legal steps, and the mistakes to avoid. For the components themselves and a standard format, start with our salary structure guide.

What is the 50% basic salary rule?

The rule comes from the definition of wages in section 2(y) of the Code on Wages, 2019. Wages include basic pay, DA and retaining allowance, and exclude a fixed list of items such as HRA, conveyance, employer PF and pension contributions, statutory bonus, overtime and commission. If those excluded items, taken together, are more than half of total remuneration, the amount above half is treated as wages. The text is in the Code on Wages, 2019, and our Code on Wages guide explains the full definition.

For the 50% test, the Labour Ministry's FAQs of 16 March 2026 say total remuneration includes employer PF and pension contributions and statutory bonus, but not gratuity, ESI or other retirement benefits. Performance incentives, ESOPs, variable pay and reimbursements are not wages at all. The FAQs are guidance rather than law, but they are the government's stated position (Labour Ministry FAQs on the Labour Codes).

Is basic salary 50% of CTC mandatory?

No. Nothing in the Codes says basic pay must be 50% of CTC. An employer can keep a lower basic and simply add the excess back to wages in the PF and gratuity calculations. A common response is to set Basic + DA at about half of total remuneration, because then wages and basic are close to the same figure and payroll is simpler to run and explain.

How to calculate basic salary as per the new labour code

Work out the minimum amount of pay that must count as wages, then check the structure against it. (Our basic salary guide covers basic pay itself: meaning, daily and pro rata calculation, and what it affects.)

1. Take total remuneration: gross salary plus employer PF and pension contributions plus statutory bonus, if paid. Leave out gratuity and ESI.
2. Halve it. That is the most the excluded items may add up to.
3. Add up the excluded items in the structure: HRA, conveyance and travel concession, employer PF, statutory bonus, overtime, commission and the other listed exclusions.
4. If the excluded items are above half, the difference is added to wages. If not, wages are basic, DA and any allowance not on the exclusion list.

So if total remuneration is ₹60,000 a month, excluded items can be up to ₹30,000. Basic + DA plus any non-excluded allowances should together be at least ₹30,000 if you want nothing to be added back. The new labour code salary calculator runs this test for any structure.

What changed, and when

There is no separate "CTC rule" or "basic salary rule" for 2026. The wage definition took effect on 21 November 2025, and 2026 brought the rules, clarifications and thresholds that sit around it:

• 21 Nov 2025All four Labour Codes in force; new wage definition applies
• 30 Dec 2025Labour Ministry FAQs on the Codes
• 16 Mar 2026Additional FAQs: what counts in the 50% test; gratuity on revised wages from 21 Nov 2025
• 1 Apr 2026Haryana's new minimum wages: basic rates that cannot be split into allowances
• 8 May 2026Final Central Rules under all four Codes notified, including the Wages (Central) Rules, 2026
• 25 Aug 2026Bonus eligibility ₹21,000 and calculation ceiling notified (Central)
• 17 Sep 2026PF wage ceiling raised to ₹25,000
• NowWage definition, FAQs and thresholds all apply; check each structure against them

The final Central Rules were notified on 8 May 2026 (KPMG summary). On gratuity, the Ministry's FAQs say the revised wages apply from 21 November 2025, and an employee leaving on or after that date is paid gratuity on the last drawn wages as defined under the Codes, for the whole period of service. That is why large IT companies booked one-time gratuity and leave charges in their October–December 2025 results; our IT employees guide has the figures. The Central Rules guide covers the May 2026 rules.

Haryana: basic minimum wages cannot be split

The "Haryana basic salary 2026" searches come from a state notification, not from the Codes. Haryana revised its minimum wages from 1 April 2026, replacing the rates notified on 21 October 2015, and its gazette notification of 9 April 2026 says the rates are basic minimum rates that may not be segregated into allowances. The monthly rates are ₹15,220.71 (unskilled), ₹16,780.74 (semi-skilled), ₹18,500.81 (skilled) and ₹19,425.85 (highly skilled). In Haryana, basic pay itself must reach these figures; HRA and other allowances cannot be counted towards the minimum. See minimum wages in India for other states.

Do you need to restructure? Three options

The Codes do not force a new structure, but they do change PF, gratuity and sometimes bonus and ESI for structures with low basic pay. Employers have three broad choices:

Option B costs the employer nothing extra, so it is the usual starting point; it can be combined with a top-up for lower-paid staff whose take-home would otherwise fall sharply. Whichever you choose, apply it consistently across grades and document the reasoning.

Worked example: restructuring a ₹40,000 monthly CTC

An employee's old structure had a CTC of ₹40,000 a month, with PF paid only on basic. The company's policy is to pay PF on wages up to the ₹25,000 ceiling, and it wants to keep CTC unchanged (option B). Gratuity is not part of CTC in this company.

What happened:

• Wages rose from ₹12,000 to ₹27,400. On the widely held reading, special allowance is wages because it is not on the exclusion list. The excluded items (HRA, conveyance, LTA and employer PF, ₹12,600) are well under half of the ₹40,000 total, so nothing else is added back.
• PF more than doubled. Wages are above ₹25,000, so the company pays PF on the ceiling: ₹3,000 each from employee and employer. Total PF contributions rise from ₹2,880 to ₹6,000 a month, of which ₹2,083 now goes to the pension scheme (EPS) and ₹3,917 to the employee's EPF account.
• Special allowance fell by ₹1,560 to absorb the higher employer PF and keep CTC at ₹40,000.
• Take-home fell by ₹3,120 a month, before professional tax and TDS, and total PF contributions rose by the same ₹3,120 (₹1,560 more from the employee, ₹1,560 more from the employer).
• Gratuity more than doubled, from ₹6,923 to ₹15,808 for each year of service, because it is worked out on wages × 15 ÷ 26.

If the employer instead treated special allowance as excluded, the old structure's excluded items would be ₹28,000, which is ₹8,000 over half of ₹40,000, so wages would be about ₹20,000 (₹12,000 + ₹8,000, before the small change in employer PF) and PF about ₹2,400 each. The choice of reading is therefore worth thousands of rupees a year in PF and gratuity for each employee, which is why it should be a documented decision, taken with advice. Check other salaries with the PF calculator and the gratuity calculator.

How to restructure salaries: step by step

1. List every pay component across grades and mark each as wages, excluded, or outside wages (incentives, ESOPs, reimbursements).
2. Decide your position on special and other fixed allowances, record it, and apply it everywhere.
3. Run the 50% test for every employee or grade, using total remuneration including employer PF and statutory bonus.
4. Fix the PF policy: PF on actual wages, or on the ₹25,000 ceiling for those above it. Employees whose PF wages exceed ₹25,000 and who were never PF members stay outside mandatory coverage.
5. Choose the option (A, B or C above) and model the cost and take-home impact by grade, using the salary breakup calculator or a spreadsheet model.
6. Check the thresholds that move with wages: state minimum wages, ESI coverage at ₹21,000 and statutory bonus eligibility at ₹21,000. Raising wages can take an employee out of ESI or bonus.
7. Follow the legal process. For workers, give 21 days' notice of the change under section 40 of the Industrial Relations Code, because wages, PF contributions and allowances are matters in its Third Schedule. Do not reduce wages directly or indirectly only to avoid contributions, which section 124 of the Code on Social Security prohibits.
8. Update the paperwork: appointment letters or salary annexures, payroll masters, the PF ECR wage base, and the gratuity provision (your actuary or auditor will want the new wage base).
9. Explain it to employees with a before-and-after for each person: what happens to take-home, PF and gratuity, and why.

What it means for CTC and in-hand pay in 2026

For employees, the effect of restructuring within the same CTC is usually lower monthly take-home and higher long-term savings: more in PF and a larger gratuity. Under the new tax regime, employee PF does not reduce tax, so the take-home fall is not offset by tax savings; under the old regime, employee PF still qualifies for the deduction formerly known as section 80C. To see your own figures, use the CTC to in-hand salary calculator, and see our guide to checking the salary in a job offer.

Mistakes to avoid when restructuring

• Treating "basic must be 50% of CTC" as the law. The test is on wages against total remuneration, and the denominator includes employer PF and bonus but not gratuity.
• Leaving special allowance out of the PF and gratuity base without a documented reason.
• Cutting gross pay without notice or presenting the change as a pay cut to cover contributions.
• Forgetting that wages, not gross pay, decide bonus eligibility (and, in the Labour Ministry's view, ESI coverage too), so raising wages can take an employee out of either. The ESI position will be settled when ESIC notifies its new regulations.
• Restructuring only new joiners. The wage definition applies to existing employees too, and gratuity for leavers since 21 November 2025 must already use it.
• Missing state rules, such as Haryana's requirement that minimum wages be paid as basic.

Related reading: Salary structure in India · Basic salary · CTC meaning · Code on Wages, 2019 · New Labour Codes pros and cons · Gratuity under the new Labour Codes

Frequently asked questions

Can I pay 50% basic and 50% benefits or allowances to employees?

Yes. If Basic + DA is half of total remuneration and the other half is made up of excluded items such as HRA, conveyance, employer PF and statutory bonus, the excluded items do not exceed 50%, so nothing is added back. Remember that employer PF and statutory bonus count on the excluded side, and that an allowance not on the exclusion list, such as a fixed special allowance, is generally wages in its own right.

Can my employer reduce my salary because PF has gone up?

An employer can restructure pay within the same CTC, which may lower take-home pay because more goes into PF. What the Code on Social Security forbids is reducing wages, directly or indirectly, only because of the liability to pay contributions. For workers, changes to wages and allowances also need 21 days' notice under the Industrial Relations Code.

Does the new wage rule apply if my salary is above ₹25,000?

Yes. The wage definition applies to everyone, and it drives gratuity at every salary level. PF is different: if your PF wages are above ₹25,000, your employer may restrict PF to the ₹25,000 ceiling, so a higher wage base does not always mean higher PF.

Do employees have to agree to a salary restructuring?

For workers, the Industrial Relations Code requires 21 days' notice before changing wages, contributions or allowances. For managers and others outside the definition of worker, the terms are set by the employment contract, so most employers issue a revised annexure and seek the employee's acceptance.

Is an employee earning above ₹21,000 eligible for statutory bonus?

Not under the Code on Wages. For the Central sphere, notification S.O. 4711(E) of 25 August 2026 makes employees whose wages are up to ₹21,000 a month eligible for statutory bonus. Note that the test is on wages, not gross pay, so restructuring that raises wages above ₹21,000 can end bonus eligibility. Employers can still pay a performance or ex gratia bonus above that level.

Is the 50% basic salary rule effective from April 2026?

No. The wage definition came into force with the Labour Codes on 21 November 2025, and the Labour Ministry has confirmed that gratuity on the revised wages applies from that date. Some employers chose April 2026 to restructure because it is the start of the financial year, which is why the date is often quoted.

Position as of 13 November 2026. Based on the Code on Wages, 2019 (section 2(y)), the Industrial Relations Code, 2020 (section 40 and Third Schedule), the Code on Social Security, 2020 (section 124), the Labour Ministry's FAQs of 30 December 2025 and 16 March 2026 (guidance, not binding) and the Haryana minimum wage notification of 9 April 2026. The treatment of special allowance is an interpretation. State rules differ, so check your state's rules. General information, not legal or tax advice.