The month of April marks a major shift in the labour laws and income tax rules. These changes will particularly impact the salaried class of the country.
The new labour laws are all set to redefine how quickly dues are cleared after someone resigns and how salaries are structured moving ahead. The updated framework, announced under the Code on Wages, 2019, reduces the waiting period for full and final (F&F) settlements while also revising rules around provident fund contributions, gratuity, and salary composition. A major highlight of the new rules is the sharply reduced timeline for clearing dues when an employee leaves an organisation. Previously, employees often faced delays ranging from 45 to 90 days in receiving pending salaries, leave encashments, and other payments. Starting April 1, 2026, employers are required to process and complete full and final settlements within just two working days of the last working day. This rule applies uniformly across cases such as resignation, termination, or retrenchment. Failure to follow this timeline could be treated as a legal breach. In such cases, employees have the right to approach labour authorities and may also claim interest on delayed payments. Gratuity Eligibility The revised labour framework also brings notable changes to gratuity eligibility and disbursal timelines. Earlier, employees typically needed to complete five continuous years of service to qualify for gratuity benefits. However, under the updated norms, this requirement has been relaxed in specific scenarios, allowing eligibility after just one year of service. Additionally, once an employee qualifies, the employer must release gratuity payments within 30 days of exit. Another significant change lies in salary structuring. The new rules mandate that basic pay must constitute at least 50 per cent of the total cost to company (CTC). This shift has multiple implications. Provident fund contributions will increase since they are calculated on basic pay. Similarly, gratuity payouts will rise over time due to a higher base salary component. However, this also means that employees may see a slight dip in their monthly take-home income due to increased deductions. On average, in-hand salaries could decline by around 2 to 5 per cent, depending on the current pay structure, even as retirement savings improve. Effect Of New Labour Laws Across Sectors The impact of these changes extends to companies as well. Organisations, especially in sectors like IT, BPO, and retail, where basic salaries were traditionally lower, may see a rise in compliance costs. Higher contributions toward PF and gratuity could push employer expenses up by 5 to 15 per cent. This may influence future hiring patterns, salary increments, and overall compensation strategies as businesses adjust to the revised norms. Employees planning to switch jobs should take a few precautionary steps under the new system. Following proper notice period compliance is crucial, as any shortfall could still be deducted from the final payout despite the faster settlement window. It is also important to submit all investment proofs and tax-related documents in advance to avoid discrepancies in final salary calculations. Additionally, confirming whether your employer has updated payroll systems in line with the new rules can help prevent delays or confusion.
