The government has introduced a uniform definition of “wages” under the New Labour Law 2025, effective from November 21, 2025. This means wages now include basic pay, dearness allowance, and retaining allowance. These three components should be at least 50% of an employee’s total pay. If allowances exceed this, the extra amount will be added back when calculating provident fund (PF), gratuity, and other social security benefits.
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Table of Contents
About the New Labour Law 2025
Labour laws (also spelled as labor laws), labour code or employment laws are those that mediate the relationship between workers, employing entities, trade unions, and the government. Collective labour law relates to the tripartite relationship between employee, employer, and union.
Individual labour law concerns employees’ rights at work also through the contract for work. Employment standards are social norms (in some cases also technical standards) for the minimum socially acceptable conditions under which employees or contractors are allowed to work. Government agencies (such as the former US Employment Standards Administration) enforce labour law (legislature, regulatory, or judicial).
Labour law arose in parallel with the Industrial Revolution as the relationship between worker and employer changed from small-scale production studios to large-scale factories. Workers sought better conditions and the right to join a labour union, while employers sought a more predictable, flexible and less costly workforce. The state of labour law at any one time is therefore both the product of and a component of struggles between various social forces.
What does this mean for your salary?
The gross salary (CTC) stays the same, but employers must adjust the salary structure internally so that basic pay, dearness allowance and retaining allowance make up at least half of the total salary.
This leads to higher contributions to PF and gratuity because these are calculated based on the basic salary.
As a result, employees’ take-home salary might reduce slightly because more salary is subject to PF deductions.
For employees earning less than ₹15,000 a month, the impact on take-home pay can be more visible. For higher earners, the effect is limited due to statutory caps. The change ensures better long-term social security benefits like retirement savings and gratuity.
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Example impact on CTC:
For a salary of ₹7 lakh annually:
- Old basic salary: approx. 30% of CTC (₹2.1 lakh)
- New basic salary: at least 50% of CTC (₹3.5 lakh)
- PF contributions increase, reducing the monthly take-home by about ₹3,500-4,000
For ₹10 lakh CTC:
- Old basic: ₹3 lakh; New basic: ₹5 lakh
- Monthly take-home reduces by approximately. ₹4,500-5,500
For ₹15 lakh CTC:
- Old basic: ₹4.5 lakh; New basic: ₹7.5 lakh
- Monthly take-home reduces by around ₹6,000-7,000
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Employers need to review pay structures for compliance. The main goal is to standardise wage calculations and improve social security without increasing the total salary cost.
In short, though take-home salary may fall a bit, employees gain higher statutory benefits and long-term financial security under the New Labour Law 2025.
Conlusion
In conclusion, the New Labour Law 2025 aims to create a fairer and more transparent wage system. While you may see a slight drop in monthly take-home pay, the benefits like provident fund and gratuity will grow, ensuring greater financial security for the future. Employers and employees should prepare for these changes through careful salary structuring and financial planning.
