Starting April 2026, many salaried professionals across India will see a shift in their monthly paychecks. While the in-hand amount may seem smaller, the changes
signal a broader effort by the government to strengthen financial security for employees over the long term. These reforms were announced under four labour codes introduced by the Ministry of Labour and Employment and aim to modernise and streamline wage regulations by replacing a patchwork of older laws with a more consistent structure. Under the updated rules, basic pay, dearness allowance (DA), and retaining allowance must together constitute at least 50 per cent of an employee’s total compensation. Other elements like house rent allowance (HRA), bonuses, and special allowances fall under exclusions. However, if these excluded components exceed half of the total salary, the surplus gets added back into wages. This effectively boosts the base salary for many workers. Since several benefits are calculated based on this wage figure, the restructuring can lead to higher contributions toward the provident fund and insurance schemes. While this supports long-term savings, it may reduce immediate take-home pay due to increased deductions. Gratuity Rules Become More Inclusive One of the most notable changes relates to gratuity eligibility. Fixed-term and contractual employees can now qualify for gratuity after just one year of continuous service, compared to the earlier five-year requirement. The government has clarified that these provisions apply from November 21, 2025. As gratuity calculations depend on last drawn wages and tenure, a higher basic salary translates into a larger payout upon exit. Rishi Agrawal, CEO and co-founder of Teamlease Regtech, explained in a Mint report the impact of these updates. “Because gratuity is calculated based on the ‘last drawn wage’, this requirement effectively establishes a higher legal floor for the payout, increasing the employer's total liability,” he added. EPF Contribution The revised wage structure also affects contributions to the Employees’ Provident Fund (EPF). With a larger portion of salary classified as wages, both employer and employee contributions are likely to increase. "While this shift raises the long-term terminal benefits for the employee, it simultaneously increases the Defined Benefit Obligation (DBO) that companies must provision for on their balance sheets," according to Agrawal. “It also leads to a reduction in monthly take-home pay, as provident fund (PF) contributions, which are also tied to the wage base, increase alongside the gratuity base,” he added. However, if employers are already contributing up to 12 per cent of basic pay as per EPF norms, the immediate change may be minimal for some employees. In the near term, employees could feel a pinch as their disposable income might see a slight dip. However, the reforms are designed to improve financial stability over time by increasing retirement savings and social security benefits. "The trade-off is between liquidity today and social security tomorrow,” Agrawal said.
