New Labour codes: Draft rules pre-published – how will your salary, wages, gratuity, allowances be calculated? FAQs released

New Labour Codes: The Ministry of Labour has pre-published draft rules under new labour codes on Wednesday. These draft rules are open for public consultation, and stakeholders have been invited to submit objections and suggestions within 45 days (30 days for Industrial Relations Rules). The government has clarified that during the transition period, existing rules will continue to apply until new rules are notified under the Labour Codes, as long as they are consistent with the Codes. Why are the new labour codes important? There are changes in the way provident fund contributions, wages, gratuity are calculated, along with a host of other measures. A uniform definition of “wages” now applies across all four Labour Codes and includes basic pay, dearness allowance and retaining allowance, with a 50 percent cap on allowances. Any allowance, excluding gratuity and retrenchment compensation, that exceeds 50 percent of total remuneration will be added back to wages for statutory calculations, while items such as performance incentives.Puneet Gupta, Partner, People Advisory Services-Tax, EY India says that the draft central rules under the four labour codes provide clarity on several operational aspects that employers have been awaiting. “For instance, the Code on Social Security Rules specify that gratuity will be calculated on ‘wages’ last drawn, excluding components such as annual performance-linked pay, medical reimbursements, stock options, and meal vouchers. This clarification will help organizations estimate their gratuity liability more effectively,” he says.“Similarly, the Occupational Safety, Health and Working Conditions Rules introduce important provisions on overtime and working conditions. Workers will now be entitled to double wages for any work beyond 48 hours in a week, and employers must ensure substituted rest days without exceeding ten consecutive working days. These measures aim to balance productivity with employee well-being,” he adds.According to Puneet Gupta, other notable provisions include annual medical check-ups for employees above 40 years in specific sectors such as factory, dock, mine, building & other construction work, creche allowances of at least Rs 500 per child where creche facilities are not provided, and journey allowances for inter-state migrant workers. Apart from the draft rules, the government has also published a list of FAQs on what the new labour codes mean, definition of wages, gratuity calculation etc.

New Labour Codes: FAQs

Below is the list of FAQs on the new labour codes that have been released by the Ministry of Labour:Which rules will be applicable during the transition period?As per the provisions of Section 6 of General Clauses Act, 1897, old rules will remain in force till final notification of new rules under the Code, to the extent these are in line with Codes.What does the term “wages” mean?The definition of “Wages” covers:

Definition of wages and the components it would cover.The definition of “Wages” covers:

What is the 50% rule for allowances?

Whether Leave Encashment be part of allowances?As mentioned in Section 2(y) of Code on Wages, 2019, leave encashment is not a part of allowances.Does this definition of wages apply to all labour laws?

Explain the allowance rule with a clear illustration?

Whether Gratuity calculation will be applicable prospectively or retrospectively. Gratuity will be applicable w.e.f. 21st Nov, 2025 i.e. date of enforcement of the Code.Clarification on gratuity calculation in view of many companies considering December month as year end. Gratuity will be applicable w.e.f. 21st Nov, 2025 i.e. date of enforcement of the Code. Establishments may make provision as per accounting norms.When gratuity is payable to an employee?Gratuity shall be payable on following events:

Are there any special provisions related to gratuity in certain cases?Completion of five years of continuous service is not necessary in case of:

If the nominee or heir is a minor, the share shall be deposited with a competent authority and invested in bank/financial institution for the benefit of such minor until majorityHow is gratuity calculated?For every completed year of service or part thereof in excess of six months: 15 days’ wages per year (or such number as notified by Central Government) based on the rate of wages last drawn.Special cases:

The maximum gratuity is as notified by the Central Government which is currently ₹ 20 lakhs. For employees re-employed after disablement:

Does gratuity affect other agreements or awards?Nothing shall affect the right of an employee to receive better gratuity terms under any:

Whether the person drawing wages ₹18,000/- or more will be covered under the definition of worker as per OSH & WC Code.Any person, who is employed in a supervisory capacity drawing wages exceeding ₹18,000/- (or an amount as may be notified by the Central Government from time to time) is not included in the definition of worker.Clarity on Core and Non-core activities.Core and non-core activities are clearly defined under the OSH & WC Code, 2020 [Section 57]. Principal employer may engage contract labour for core activities which are ordinarily carried out through contractor, or of intermittent nature or involve sudden increase in volume of work requiring time-bound completion.Whether Journey Allowance for ISMW within the State for the long-distance workers may be allowed.As per OSH & WC Code, 2020, the employer shall pay to and fro journey allowance to ISMW once in a year from his native place to place of employment.How will the ESI coverage be governed until the finalisation of Rules? The definition of wage has come into force with notification of the Code w.e.f. 21st Nov, 2025.