Effective November 21, 2025, the Central Government enforced the four new Labour Codes, triggering one of the biggest payroll restructuring exercises India has ever seen.
The most dangerous element for industrial employers in the city is the revised definition of Wages under the Code on Wages, 2019. This single amendment—the New 50% Basic Salary Rule Ludhiana—will directly impact your Cost-to-Company (CTC), employee take-home salary, and future financial liability if your factory is based in areas like Focal Point or Janta Nagar.
If your MSME unit has a traditional salary structure (where Basic Pay is $30\%$ to $40\%$ of CTC), you must act now to avoid immediate audit risk and significantly higher future payouts
Decoding the New 50% Basic Salary Rule
The Code on Wages, 2019, introduced a mandatory floor for the ‘Wages’ component of an employee’s remuneration package.
The Rule:
The sum of Basic Pay, Dearness Allowance (DA), and Retaining Allowance must constitute at least 50% of the employee’s total remuneration (CTC).
The Enforcement Mechanism:
If the total of your allowances (like HRA, special allowances, conveyance, and overtime) exceeds $50\%$ of the employee’s total remuneration, the excess amount must be added back into the ‘Wages’ calculation base.
Why This Rule is Devastating for Existing Ludhiana Pay Structures
Historically, industrial employers maximized allowances to keep the Basic Pay component low. This minimized statutory contributions. The new rule eliminates this strategy entirely:
Increased PF Contribution: Your mandatory employer contribution to the Provident Fund (PF) is calculated on ‘Wages.’ A higher wage base automatically means a higher PF contribution (12% of the new, higher wages).
Higher Gratuity Liability: Gratuity is calculated based on the last drawn basic salary. The new $50\%$ minimum will significantly increase your future gratuity liability, which must be accounted for in your financial statements immediately.
Lower Take-Home Salary: If you maintain the same CTC, the increase in mandatory PF and gratuity contributions is adjusted by reducing the flexible components (like Special Allowance or HRA). This means your employee’s monthly take-home salary will drop, leading to potential labour disputes.
The Gratuity Shock: One-Year Eligibility
Beyond the $50\%$ rule, the Code on Social Security, 2020 introduced a massive change to Gratuity eligibility that directly impacts industrial employment models in Punjab:
Fixed-Term Employees (FTEs): FTEs are now eligible for Gratuity after completing just one year of continuous service, down from the previous five-year minimum.
Permanent Employees: The five-year minimum still applies to permanent employees, but the calculation is based on the new, higher $50\%$ wage definition.
This means employers who rely heavily on fixed-term or contractual hiring now have a much shorter financial liability clock running.
Your Immediate Action Plan for Ludhiana Compliance
The central codes are in effect, and the state rules from the Punjab government are expected to follow swiftly. Compliance is mandatory.
Salary Restructuring: Immediately review all employee CTC structures. Ensure the Basic + DA component meets the $50\%$ minimum.
HRMS & Payroll Audit: Update your payroll software and HR Management System (HRMS) to correctly calculate the increased PF and Gratuity contributions prospectively from November 21, 2025.
Financial Accounting: Consult your accountant to recognize the new, increased gratuity liability (Past Service Cost) on your Balance Sheet, as required by Ind AS 19/AS 15.
Official External Resources for Verification
To confirm the mandatory changes, we recommend reviewing the official government notifications:
Code on Wages, 2019 Details: For the official text on the Wage Code and the definition of Wages.
Code on Social Security, 2020: For details on the new Gratuity eligibility for Fixed-Term Employees.
You can review the official Government Press Release on the Labour Codes here: PIB Official Notification (November 2025)
For the technical implications of the gratuity changes, see the analysis by The Economic Times: Gratuity Rules 2025 Impact
CTA: Stop worrying about payroll risks! Our experts specialize in Ludhiana industrial compliance and can restructure your entire payroll system to be compliant with the new 2025 Labour Codes immediately.
Contact us today for a free compliance audit.
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