More than a month after the new labour codes came into effect, the Union ministry of labour and employment has released draft rules that outline how minimum wages, gratuity and social security will be guaranteed to over 400 million workers.
Mint first reported that the Centre and states are at various stages of rolling out rules under India's four new labour codes. On 21 November, the Centre released the labour codes, consolidating 29 existing labour laws into four codes -- Code on Wages, 2019, Industrial Relations Code, 2020, Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020.
Wage definition, gratuity
The definition of wages and the new formula to calculate gratuity have come into force on 21 November 2025, according to the government. "Establishments may make provision as per accounting norms," the ministry said in a separate note on FAQs (frequently asked questions) on Wednesday regarding the revised formula for gratuity calculation.
The definition of ‘wages’ now includes basic pay, dearness allowance (DA), and retaining allowance, with at least 50% of total remuneration counted as wages.
Previously, employers often structured salary packages so that basic pay plus DA formed a small portion of the total compensation, with large parts allocated to allowances that did not count towards statutory benefits such as gratuity or provident fund (PF). Under the new labour codes, every component of the cost-to-company (CTC) will now be treated as remuneration unless specifically exempted, with the maximum exemption capped at 50% of total compensation. This change is expected to increase PF and gratuity contributions by employers, as the wage base expands.
The ministry further clarified that leave encashment would not be part of allowances, and the definition of wages applies across all four labour codes and would also apply uniformly for statutory calculations.
Compliance, worker welfare
The rules clarify certain overlaps and enforce further digitization in the regulatory processes. Stakeholders can give their feedback within 45 days.
The draft rules were first notified in 2019–20 when Parliament passed the four new labour codes, and stakeholder comments were received. However, given the lapse of nearly five years, current norms require the draft rules to be reissued.
According to experts, the consultative approach is aimed at ensuring clarity and a smooth transition to the new compliance regime.
Puneet Gupta, partner, people advisory services-tax, EY India, said: "The draft rules also tighten compliance requirements. Employers will need to issue appointment letters in a prescribed format within three months of the rules coming into force, maintain registers for wages, attendance, and women employees, and file unified annual returns. Additionally, establishments employing 500 or more workers must constitute safety committees, while those with 20 or more workers must set up grievance redressal committees in accordance with these rules."
He added that other key provisions include annual medical check-ups for employees above 40 years in specific sectors such as factory, dock, mine, building and other construction work, creche allowances of at least ₹500 per child where creche facilities are not provided, and travel allowances for inter-state migrant workers.
"These changes reflect a strong emphasis on health, safety, and social security, and businesses should start preparing now to ensure smooth compliance once the rules are finalized," Gupta said.
The draft central rules under the four labour codes provide clarity on several operational aspects. The code on social security rules specifies 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 has been done to help organizations estimate their gratuity liability more effectively, according to experts.
Further, according to the Occupational Safety, Health and Working Conditions Rules, 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.