Is salary structure change mandatory for all employers under new labour laws? Lawyers weigh in

The four new labour codes are effective from November 21, 2025. Ever since the announcement of their implementation, there have been a lot of misconceptions doing the rounds on social media around impending changes to salary structures currently offered by employers.

The Labour Codes mandate companies to offer at least 50% of the total remuneration as basic salary. Many employers currently offer 30% to 40% of the pay package as basic salary. To be on the right side of the law, such employers should revise their salary structures.

However, employers may not immediately revise their salary structures to comply with the Labour Codes. Many employers may not even need to do this at all. To elaborate on this further, we sought views from three legal experts. Here's what they said:

Is it mandatory to make changes immediately?

Implementing the provisions of the four Labour Codes is going to be mandatory for employers. However, changes in salary structures may not happen immediately, according to the experts. One big reason for this is the fact that labour is in the concurrent list.

To give effect to the Labour Codes, states will also need to notify their own Labour Codes, adhering to the broader spirit of the rules notified by the central government. This means that even though the Labour Codes have been officially announced by the central government as effective from November 21, full implementation of their provisions may take some time.

Rohit Jain, Managing Partner, Singhania & Co, says companies will need to revise their CTC/salary packages once the Labour Codes are notified and enforced for all states.

Replying to the question of whether all companies must revise their CTC as per the new Labour Codes, Mr Jain said, "Yes, once the codes are notified and enforced for all states. When the Wage Code becomes fully operational, companies must align their CTC structures with the 50% wage rule."

However, he pointed out that, practically, many companies may continue using old structures until state rules are notified and enforcement begins. "But legally, once applicable, restructuring is mandatory," he said.

Abe Abraham, Partner, Cyril Amarchand Mangaldas, said, "If an organization’s existing CTC structure already aligns with the requirements of the Labour Codes, no immediate changes are necessary. However, if the structure does not conform to the expanded definition of “wages” under the Codes, it is essential to revise the CTC to ensure that the correct components are considered when calculating statutory dues and contributions."

What can happen if the employer fails to follow the Labour Codes?

Mr Abraham said that the failure to implement the Labour Codes could expose the employer to claims of underpayment and increased regulatory scrutiny, including the risk of significant penalties under the new labour regime.

"Accordingly, as a first step, organizations should assess whether their CTC structure and benefit calculations are compliant with the Labour Codes. Based on this assessment, they can then determine and implement any modifications needed to ensure ongoing legal compliance," he suggested.

When can a company continue with old salary structures?

Himesh Thakur, Associate Partner, PSL Advocates & Solicitors, said it is not mandatory for companies to completely change or revise their existing CTC structures solely because of the new Labour Codes. "However, the new labour codes do require that at least 50% of an employee's total CTC must be classified as basic wages for statutory calculations, such as Provident Fund (PF) and gratuity contributions. This necessitates companies to recalibrate their CTC structures to comply with this minimum basic salary threshold, especially if their current structure allocates less than 50% of CTC as basic wages."

Companies can continue with their old CTC structures if those structures already comply with the new wage definitions under the Labour Codes, meaning the basic salary is at least 50% of the CTC. But if the existing CTC framework has a lower proportion of basic pay, they will need to adjust the salary composition to meet the new legal requirements.

Experts say that the new Labour Codes are not an outright mandate to revise CTC but a compliance requirement impacting how salaries are structured relating to statutory benefits.

"Therefore, the key compliance focus under the new labour codes is the classification and minimum threshold of basic wages rather than a mandatory overhaul of the entire CTC structure. Employers are advised to review and, if needed, recalibrate their wage and salary components to ensure adherence to the updated definition of wages that affects PF, gratuity, and other social security calculations," said Mr Thakur.

"This compliance move could lead to changes in take-home pay for employees, as higher basic salaries may mean higher contributions under social security statutes but does not prohibit using existing allowances beyond the 50% wage classification limit," he added.