As of April 1, 2026, the Indian government has implemented a set of labour reforms that fundamentally alter how every salaried employee in the country is paid. The New Wage Code, a massive undertaking by the Ministry of Labour and Employment, streamlines hundreds of complicated colonial-era laws into a single, modern framework.
The 50% rule is a significant change for the average worker's pay, involving the legal definition of “wages”. Under Section 2(y) of the Code on Wages, 2019, an employee’s Basic Pay, along with any Dearness Allowance and Retaining Allowance, must now comprise at least 50% of their total remuneration or Cost to Company (CTC).
This shift may result in a higher deduction for Employee Provident Fund (EPF) and Gratuity, but it is a deliberate move towards long-term savings mediated by the government. The ultimate goal is a short-term pinch for a long-term gain.
The central government says, “A standardised definition of “wages” across all labour laws for social security purposes to be followed. This will increase the wage amount and, in turn, enhance the value of social security benefits such as gratuity, pension, and leave salary, which are linked to wages.”
