Top 10 key Highlights of the New Labour Code every Employee should know!

Ever wondered how the new Labour Code 2025 will change your paycheck, leave policy, or job security? 

The new labour code in India, effective from November 2025, introduce significant changes impacting your provident fund corpus, gratuity benefit, employee’s leave benefits, and wage payment, with a focus on wider worker protection and clarity.

This post unpacks the 10 most crucial updates shaping India’s job market—read on to stay ahead.

Top 10 Key Highlights of the New Labour Code

1. New Wage Definition

• The new wage definition includes basic pay, dearness allowance, and retaining allowance, with rules requiring these to make up at least 50% of employees total CTC (Cost to Company).
• Since retirement benefits like gratuity and PF are calculated on this broader base, your take-home pay may dip short-term but your retirement benefits like Provident Fund and gratuity will increase in the long run.​
• Employers are mandatorily required to pay wages within a specific time frame (e.g., within 7 days of the next month for monthly wages, within 2 working days of termination/resignation), ensuring financial stability for workers. 
• All workers will get PF, ESIC, EDLI, and other social security benefits.
  • Provident Fund (EPF): 12% employer/employee contributions on expanded wages (≥50% of CTC as basic + DA + retaining allowance).​
  • ESIC: Health insurance, sickness/maternity/disability benefits for employees.
  • Gratuity & Insurance: Pro-rated for fixed-term workers after 1 year; deposit-linked life cover at 1% of wages.

2. Gratuity Benefit

• The 2025 Labour Code cuts gratuity eligibility to 1 year of continuous service for fixed-term, contract, and gig workers. However, the Fixed-term employees must have worked at least 240 days in the year to qualify for gratuity benefit.
• Permanent employees’ eligibility remains at 5 years of continuous service.
• Employers must make gratuity payments within 30 days of an employee’s exit. Delays result in 10% annual interest charges.
• The maximum gratuity amount payable by an employer is ₹20 lakh.
• Gratuity is calculated based on the last drawn wages, which now include basic pay, dearness allowance, and retaining allowance under the new wage definition.
• The formula for gratuity payment is:

3. Employees Provident Fund & NPS

Statutory contributions (12% of wages) will likely increase because the wage definition now includes at least 50% of total remuneration as basic pay, increasing employees’ retirement corpus.

No specific new rules target NPS (National Pension System) directly under the 2025 Labour Codes. However, the expanded wage definition (basic pay + DA + retaining allowance at ≥50% of CTC) increases the base for retirement contributions like PF and NPS, potentially boosting NPS allocations while reducing take-home pay short-term.

Let’s say your CTC today is ₹1,00,000. Under the old structure, companies often kept basic pay at 30–40%, with the rest as allowances to reduce PF outgo. Here’s how it would look under the old and new regulations:

Old structure:

• Basic: ₹35,000
• Other Allowances: ₹65,000
• PF (12% of basic): ₹4,200
• Your take-home salary was higher, because PF outgo was small.

New structure (under 50% wage rule):

• Basic has to be at least ₹50,000 (Rs 50% of Rs 1 lakh)
• Other Allowances: ₹50,000
• PF (12% of basic): ₹6,000
• Your Take-home salary is lower, because EPF contribution rises.

4. Working hours

• The daily working hours are capped at 8 hours, and weekly working hours are capped at 48 hours.
• Employers and employees can mutually agree on flexible weekly work schedules, for example, a 6-day week with fewer hours on some days, as long as the total does not exceed 48 hours per week.
  •  For flexible schedules with longer days (e.g., 12 hours), the law mandates a minimum of 12 consecutive hours of rest between shifts. 
• Any work beyond 8 hours a day or 48 hours a week is considered overtime. Overtime is voluntary; employees cannot be forced to work beyond prescribed hours. Overtime hours must be compensated at twice the employee’s normal hourly wage rate, ensuring fair remuneration for extra work.
• These provisions apply to all workers, including those in fixed-term, contract, and gig roles.

5. Maternity benefit

• Women employees who have worked at least 80 days in the 12 months preceding the expected delivery date are eligible for maternity benefits.
• Eligible women are entitled to 26 weeks of paid maternity leave for the first two children, with up to 12 weeks for the third child onwards.
• Employers with 50 or more employees must provide crèche facilities to support working mothers, allowing them up to four daily nursing visits during work hours.
• Women are entitled to full salary during maternity leave, securing financial stability during childbirth and recovery.
• The new codes also encourage work-from-home options for mothers post maternity leave, depending on the nature of the job and mutual agreement.

6. Earned Leaves or Paid Leaves

• Employees qualify for annual paid leave after just 180 days of work in a year—down from the previous 240-day threshold—making benefits available sooner.
• Accrued earned leave can be carried forward to the next year, but only up to a maximum of 30 days; any leave balance exceeding 30 days must be paid out (encashed) by the employer, ensuring employees don’t lose their leave benefits.​ Earned leave cannot lapse; workers must either use, carry forward, or get paid for unused leave annually.
  • Howver, the above rules concerning annual encashment of leave may not apply to managerial or supervisory staff, as defined by the Occupational Safety, Health and Working Conditions (OSH) Code.
• The amount of leave encashment is calculated based on the definition of “wages” under the new Code on Wages. It includes all remuneration except for certain components, such as House Rent Allowance (HRA) and conveyance allowance, provided those excluded items do not exceed 50% of the total remuneration.
• Leave policies are standardized across sectors, helping gig, fixed-term, contract, and permanent workers alike to receive uniform leave benefits.​

7. Appointment Letter

• Appointment letters are now mandatory, enhancing transparency between employers and employees regarding terms and conditions of employment.​
• Employers must provide appointment letters within the first 7 days of joining, clearly outlining terms such as job role, salary structure, working hours, leave entitlements, probation period, and termination conditions.
• Appointment letters must specify wages, allowances, and any applicable statutory benefits, aligning with the new definition of wages under the labor codes.

8. Night Shift

• Women are allowed to work night shifts only with their prior consent, and employers must provide safe transportation. Strict safety and welfare conditions are mandated for women working during night hours to ensure their protection and dignity.
• Pregnant women and women with infants have additional protections restricting night work to safeguard health.
• The rules apply across all sectors and types of employment, extending protections to contract, fixed-term, and gig workers.

9. Health Check-ups

Employers are required to conduct annual health checkups for employees, especially where occupational hazards are present. Employers must provide all workers above the age of 40 years with a free annual health check-up. Promote timely preventive healthcare culture

10. Full and final settlement

• Under the new labor code effective from November 2025, full and final settlement of all dues must be completed within two working days of an employee’s last working day after resignation, termination, or layoff.
  • Layoff and closure rules now allow factories with up to 300 workers to lay off employees or close units without prior government approval, easing compliance for smaller establishments.​
• The settlement includes pending salary, leave encashment, gratuity (if eligible), reimbursements, bonuses, and any other dues.
• Employers must clear all financial liabilities on time, or face penalties and interest.

Action Steps for You (Employees)

• Review your salary structure and appointment letter for compliance with the new wage definition.
• Register on e-Shram portal for unorganized/gig benefits and track PF/ESIC via UAN.​
• Discuss flexible hours, night shifts, or WFH with employers under mutual consent provisions.

Track changes via your EPFO UAN, e-Shram portal, or employer letter, and recalculate PF/gratuity under the new wage rules to secure your financial future.

(Post first published on : 27-Nov-2025)