New Labour Codes Change PF, Gratuity Rules for Indian Workers Effective Nov 21, 2025

Starting November 21, 2025, nearly 500 million Indian workers will see their pay packets, retirement benefits, and job security reshaped by the implementation of four new Labour Codes — a sweeping overhaul of 29 outdated laws. The changes, announced by the Ministry of Labour and Employment through its New Delhi headquarters, don’t just tweak rules — they redefine what counts as wages, who qualifies for gratuity, and how much workers actually take home. The twist? Many employees won’t get more money. Some might get less — not because of pay cuts, but because of how employers are forced to recalculate costs.

What Exactly Changed in the Wage Definition?

The core shift isn’t about raising salaries. It’s about redefining what counts as ‘wages’ for statutory purposes. Under the new codes, components like dearness allowance (DA), house rent allowance, and other fixed payments now fall under the broader wage definition — meaning they’ll be included when calculating PF and gratuity. Alay Razvi, managing partner at Accord Juris, puts it plainly: "This means the base figure used for calculating deductions like PF and gratuity will increase for both permanent and fixed-term employees. The law doesn’t force employers to raise the basic salary itself, but statutory calculations must use the new wage base." That’s critical. For employees earning under ₹15,000 monthly in basic + DA, PF deductions (still at 12%) will go up because more of their pay now qualifies. But for those already above the ceiling? Nothing changes on paper. The real pain point? Employers may now adjust CTC structures — reducing fixed allowances — to offset higher statutory liabilities. That’s why Angel One warns: take-home pay could dip for some, even if gross salary stays the same.

Gratuity: A Lifeline for Fixed-Term Workers

Here’s where the reform shines. For the first time, fixed-term employees — often hired for projects, contracts, or seasonal roles — can claim gratuity after just one year of continuous service. That’s a radical drop from the previous five-year requirement. "The reports that every employee will now get gratuity after one year are incorrect," clarifies Rohit Jain, managing partner at Singhania & Co. "It’s still five years for permanent employees. Only fixed-term employees benefit from the new one-year rule." Why does this matter? Thousands of contract workers — from IT project staff to retail seasonal hires — now have a legal safety net. Their gratuity payout will also be higher, since the calculation base now includes more components of their pay. For many, this could mean an extra ₹50,000–₹1.2 lakh on exit, depending on tenure and salary structure. The Ministry of Labour and Employment confirmed that fixed-term workers must now receive equal leave, medical, and social security benefits as permanent staff — a long-overdue parity.

ESIC, Health Checks, and the Gig Economy Revolution

The Employees' State Insurance Corporation (ESIC) has gone pan-India. No more "notified areas" — if you work in a covered establishment, you’re in. Even firms with fewer than 10 employees can now opt in, if both sides agree. Hazardous jobs and plantation workers are now mandatorily covered. And here’s a quiet bombshell: gig and platform workers — Uber drivers, Swiggy delivery personnel, freelance designers — now qualify for PF, ESIC, insurance, maternity benefits, and pension. This isn’t symbolic. It’s structural.

But there’s a cost. Approximately 6 million white-collar employees aged 40 and above must now undergo mandatory annual health screenings. Employers bear this cost. "It’s a well-intentioned policy," says a senior HR head in Bengaluru, speaking anonymously, "but many small firms are already struggling. This could push some to automate or downsize."

Compliance Gets Smarter — But More Expensive

The Inspector-cum-Facilitator System replaces old-school raids with randomized, algorithm-driven web inspections. That’s good for compliance. But the new Re-skilling Fund? That’s a financial punch. Every retrenched worker gets 15 days’ wages credited to their account within 45 days. The fund is paid by employers — and it’s non-negotiable. Meanwhile, factory thresholds have risen: from 10 to 20 workers (with power), and 20 to 40 (without). Small manufacturers breathe easier.

A new Social Security Fund for unorganised workers — financed by penalties — will help street vendors, domestic helpers, and construction laborers. And for the first time, women can legally work night shifts in any occupation — provided they consent and safety measures are in place. No more blanket bans.

What’s the Real Impact?

The implementation of the Labour CodesIndia won’t feel like a revolution. It’ll feel like a slow leak in payroll budgets. Employers will restructure CTCs. Some will cut allowances. Others will absorb costs. Workers with fixed-term contracts gain real security. Gig workers get dignity. But for many salaried employees, the net gain? Unclear.

"The goal was simplification," says a former EPFO official. "But they added new liabilities without addressing wage stagnation. The system is cleaner — but heavier." The timeline is tight. Companies have less than a year to reconfigure HR systems, update contracts, and train managers. The Employees' Provident Fund Organisation (EPFO) has also capped inquiries at five years and abolished suo-moto case reopenings — a win for employers seeking closure.

What’s Next?

Watch for three things: First, how many small firms shut down or shift to automation to avoid the Re-skilling Fund. Second, whether wage inflation in the informal sector picks up as more workers demand parity. Third — and most crucially — whether the government introduces tax incentives to offset employer costs. Without them, this reform could become a compliance burden disguised as progress.