Labour codes 50% wage rule: PF, gratuity, encashment

The rule in one line

Wages are basic pay, dearness allowance and retaining allowance. Other allowances can be excluded only up to 50% of total remuneration. Anything above that is added back into wages. So statutory wages are at least 50% of total remuneration.

A worked example

What it touches

• Provident fund: contributions are on statutory wages, subject to the wage ceiling. With the ₹25,000 ceiling from September 2026, employees whose basic was low may now reach it.
• Gratuity: calculated on last drawn wages, so allowance-heavy structures give a larger gratuity.
• Leave encashment: paid on wages, so the encashed amount is higher for the same leave balance.
• Salary structure: many companies redesign structures so basic is at least 50% of cost to company.

In AdviHR

AdviHR applies the 50% rule to PF, gratuity and leave encashment, and a company can switch it off in settings if its advisers decide to apply it from a different date. The salary structure check warns when basic is below half of remuneration.

What to confirm with your adviser

• The date from which your company applies the new wage definition.
• Whether existing employees are grandfathered under any agreement.
• Which of your employees are fixed-term. AdviHR pays gratuity after one year to employees marked Fixed-term in their profile, and after five years to everyone else.