The classic Indian salary structure was built for a purpose: a small basic, a large special allowance, and a set of reimbursements, so that provident fund, gratuity, bonus and notice pay were all calculated on a fraction of what the employee actually earned. That architecture was aimed at definitions of wages that each old statute wrote differently. The codes replaced them with one, written to defeat the structure.
The provision that does the work
Under the Code on Wages, 2019, wages means all remuneration payable to a person employed, and includes basic pay, dearness allowance and retaining allowance, while excluding a listed set of items: statutory bonus not forming part of the terms of employment, the value of accommodation and amenities, the employer's provident fund and pension contributions, conveyance allowance, special expenses, house rent allowance, remuneration under an award or settlement, overtime allowance, commission, gratuity and retrenchment or retirement payments. Then comes the proviso:
The Code on Social Security, 2020 carries the same definition in the same words, and so does the Industrial Relations Code, 2020. That is why the same restructuring question now has one answer across provident fund, gratuity, bonus and notice pay instead of four.
So what is left of the practice
- Restructuring to take the wage base below half your remuneration no longer works. Whatever the payslip labels say, the arithmetic floor is one half. An employer that has kept a thirty five per cent basic and told you the provident fund base is that basic is applying a rule that changed.
- Restructuring that stays within the rule is not unlawful in itself. An employer may design a pay structure. What it cannot do is design one that produces a lower statutory base than the definition allows.
- Reducing your total pay is a different question altogether. That is a change to the terms of your employment. It ordinarily needs your consent, and where it is done unilaterally it is a contractual claim in its own right, quite apart from anything the codes say. Our guide on what an Indian employment agreement should contain sets out which clauses give an employer room to vary pay and which do not.
The Ministry of Labour and Employment's frequently asked questions on the codes record that the revised definition of wages took effect on 21 November 2025, that overtime allowance forms part of the components counted when applying the fifty per cent test, that annual performance based incentives do not form part of wages for computation under the codes, and that for arriving at the fifty per cent only statutory components such as the employer's provident fund and pension contributions and statutory bonus are included in remuneration, with gratuity and employees' state insurance and other retirement benefits left out. Those answers are administrative guidance, not a legal document, and the Code prevails where they differ.
Working out whether you have actually lost anything
- Take your monthly gross, including every allowance and reimbursement that is remuneration.
- Add up the excluded heads. House rent allowance, conveyance, special allowance framed as expenses, overtime, commission and the like.
- Compare. If the excluded heads exceed half the gross, the excess is added back and your wage base is half your gross. If they do not, your wage base is basic plus dearness allowance plus retaining allowance.
- Then apply it. Gratuity is computed on wages last drawn at fifteen days' wages for each completed year and any part over six months, which for a monthly rated employee means the monthly rate divided by twenty six and multiplied by fifteen. Our note on gratuity under the Code on Social Security takes that chapter further.
What to do about it
Write to the employer and ask two specific questions: what figure it treats as wages for you under the definition in the Code, and its computation showing how it arrived at that figure. Most restructuring disputes end there, because an employer that cannot produce the working usually has not done it. If the answer is unsatisfactory:
- For the provident fund, the route is the Employees' Provident Fund Organisation, which can enquire into and determine the dues, with your payslips and passbook as the starting documents.
- For unpaid wages arising from the restructuring, the route is the authority appointed under the Code on Wages. That authority may order compensation in addition to the amount determined and issues a recovery certificate to the Collector if the employer does not pay. The application is ordinarily made within three years of the claim arising, and the authority may entertain it later on sufficient cause being shown.
Do not carry forward a provident fund wage ceiling or a contribution rate from memory, and do not assume the old gratuity ceiling. Those are set by notification and by scheme rather than written into the Code, and the fifty per cent in the wages proviso can itself be changed by notification. Take each from the notification in force on the day you compute.
For why the section numbers in older articles about basic pay and provident fund no longer match the statute book, see our overview of what the four labour codes changed for employees.