Are Salary Structures Aligned with Updated Definitions of “Wages” Under Labour Codes?
I’ll be blunt: too many HR departments are still treating the new definition of “wages” like a footnote. It’s not. It’s the backbone of the four labour codes that came into effect in November 2025 (PIB Notification, 21 Nov 2025).
When I first reviewed a client’s salary breakup post‑implementation,
I noticed something alarming. Their “basic pay” was deliberately kept low, with
allowances stacked high. That trick used to work under the old regime. Not
anymore.
“If allowances exceed 50% of total remuneration, the
excess must be added back into wages.” — Ministry of Labour FAQs
That single line changes everything.
What the New Definition of Wages Means
- Included:
Basic pay, dearness allowance, retaining allowance.
- Excluded
(but capped): HRA, overtime, commissions, and other allowances. If
exclusions cross 50% of total pay, the excess gets counted as wages (Ministry of Labour FAQs).
- Impact:
PF, gratuity, and bonus calculations will shoot up for many employees.
Why Salary Structures Are Misaligned
- Legacy
mindset: Employers still design pay packages to minimize statutory
contributions.
- No
transition period: The government notifications didn’t provide a
buffer for restructuring (PIB
Notification, 21 Nov 2025).
- Compliance
risk: Misalignment could trigger penalties, disputes, and reputational
damage.
Key Takeaways for Employers
- Audit
salary structures immediately.
- Cap
allowances at 50%.
- Recalculate
PF, gratuity, and bonus obligations.
- Communicate
transparently with employees.
Risks of Ignoring Alignment
- Higher
litigation exposure.
- Employee
dissatisfaction when benefits are recalculated later.
- Surprise
liabilities during inspections.
Bottom line: Salary structures must evolve.
Pretending the old tricks still work is a compliance disaster waiting to
happen.
References
- Ministry
of Labour & Employment FAQs on Labour Codes – labour.gov.in
- Press
Release, Government of India Notification dated 21 November 2025 – PIB
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