Gratuity and benefits to soar for millions of employees

The government on Friday implemented four new labour codes, marking the biggest overhaul of workers’ laws in decades.

- Shipra Singh

The government has said the move aims to simplify rules and improve worker protection. A key change under the new codes is the definition of ‘wages’, which 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 total compensation, with large parts allocated to allowances that did not count towards benefits such as gratuity or provident fund. 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.

CTC components

‘Wages’ now include basic pay, dearness allowance, and retaining allowance; 50% of the total remuneration (or as may be notified) shall be added back to compute wages, ensuring consistency in calculating gratuity, pension, and social security benefits,” an official statement said.