Short answer
From 21 November 2025 one definition of “wages” applies across all four Labour Codes. Wages = basic pay + dearness allowance (+ retaining allowance, if any). If allowances exceed 50% of total remuneration, the excess is added back to wages for statutory calculations. PF, gratuity and similar benefits are worked out on this larger base.
What counts as wages
- Included: basic pay, DA, retaining allowance (if any).
- Added back: allowances and benefits above 50% of total remuneration (gratuity and retrenchment compensation are not counted in the allowance total).
- Not part of wages (Labour Ministry FAQ): performance-based incentives, ESOPs, the variable part of pay, and reimbursement-based payments. Leave encashment is not an allowance.
Official worked example (Ministry of Labour and Employment FAQ)
| Item | Per month |
|---|---|
| Total remuneration | Rs 76,000 |
| Basic pay + DA | Rs 20,000 |
| Allowances | Rs 40,000 |
| Other components (gratuity, retrenchment compensation) | Rs 16,000 |
| Total paid other than basic + DA | Rs 56,000 |
| Limit: 50% of total remuneration | Rs 38,000 |
| Excess allowance over the limit (Rs 40,000 allowances minus Rs 38,000) | Rs 2,000 |
| Revised wages for statutory calculations (Rs 20,000 + Rs 2,000) | Rs 22,000 |
The excess is measured on the Rs 40,000 of allowances, because gratuity and retrenchment compensation are excluded from the allowance total. Figures are as printed in the Ministry FAQ.
Effective date
The definition is effective from 21 November 2025, and gratuity on revised wages applies from the same date. The Ministry’s FAQ says existing rules continue to the extent they are in line with the Codes until the rules are finally notified.
What it means for you
- A higher wage base can raise PF contribution and gratuity. The definition does not reduce wages; the excess allowance is added back.
- Take-home can change if your employer restructures pay. Check your payslip and ask HR how your CTC is structured.
- This post covers employees under the Labour Codes. Central government pay, DA and pension follow the 7th CPC rules; see our pay calculator and pension calculator.
We have not stated PF wage-ceiling or EPFO contribution figures here because they are not confirmed in the Ministry FAQ.