A sweeping overhaul of India's labour system is now in effect, with 29 central statutes subsumed into four unified Labour Codes as of Nov. 21, 2025. The consolidation signals a major regulatory shift, designed to ease compliance burdens, curb disputes over interpretation, and bring consistency across workplaces.
The rollout of the new labour codes has triggered widespread queries about the treatment of salary components, including overtime allowances, gratuity, bonuses and retirement payouts. A key concern among workers is whether overtime forms part of the 50% wage floor and what constitutes “total remuneration” under the revised norms.
A total of 29 labour laws have been consolidated into four key Labour Codes by the government. These are the Code on Wages, 2019; Industrial Relations Code, 2020; Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions Code, 2020.
According to the government's FAQs on the labour codes, here are the key takeaways from the rules:
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Overtime Payment Part Of 50% Wage Rule?
Overtime pay is counted within the 50% wage threshold under the new framework. However, only specified statutory elements, such as the employer's contribution to the provident fund and pension, along with statutory bonuses, are considered when determining this limit.
Benefits, including gratuity, ESI and other retirement-related benefits, are excluded. Where the sum of excluded components exceeds half of the total remuneration, the excess is added back to wages, in line with provisions under Section 2(y) of the Code on Wages.
Are Wages And Minimum Wages Same?
No. By law, minimum wages are established by the relevant government authority, and employers must adhere to these rates. Any payment below the stipulated minimum is unlawful.
Are Annual Performance Incentives Counted As ‘Wages'?
No, annual performance-linked incentives are not included within the definition of “wages” for calculations under the Labour Codes.
Does Revised ‘Wages' Definition Apply To Gratuity From Nov. 21, 2025?
Yes, the revised wage definition will apply to gratuity calculations from Nov. 21, 2025, the date on which the Labour Codes are enforced.
Gratuity Rules: Prospective Or Retrospective Application?
Gratuity calculations will take effect from Nov. 21, 2025, aligning with the rollout of the Labour Codes.
When Do Fixed-Term Employees Qualify For Gratuity?
A fixed-term employee will qualify for gratuity upon completing one year of service under the terms of their contract, calculated from the date of commencement.
Who Is Liable For Gratuity In Contract Labour Arrangements?
Under Section 53 of the Code on Social Security, 2020, the responsibility for gratuity payments rests with the contractor. The benefit becomes payable after five years of continuous service, calculated at 15 days' wages for each completed year, based on the employee's last drawn salary.
Leave Encashment Under The OSH & WC Code: Limited To Select Workers Or Applicable To All?
The Occupational Safety, Health and Working Conditions Code, 2020, extends leave benefits to workers: a category that includes sales promotion employees and working journalists. Supervisors fall within its scope only when their wages are capped at Rs 18,000 per month.
What Is The Leave Carry-Forward Limit?
Workers are permitted to carry forward up to 30 days of leave into the following calendar year. However, if leave applied for with wages is denied, the unapproved portion may be carried forward without any cap.
Leave Encashment Rules: Are They Limited To Workers Or Applicable To All Employees?
Leave encashment is available to workers under the Code. Notably, sales promotion employees are classified as ‘workers' under Section 2(1)(zzl) of the OSH & WC Code, 2020.
How Many Leave Days Can Be Encashed Under The Labour Codes?
There is no cap on leave encashment under the Occupational Safety, Health and Working Conditions Code, 2020. If leave exceeding 30 days is sought but not approved, it can be encashed at year-end. Additionally, workers may encash their accumulated leave balance when they exit employment.
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