From overtime to leave to PF: How the new labour code could change your pay and life
India’s new labour codes, effective April 2026, are set to reshape how employees earn, save, and take leave. From overtime pay to PF contributions and leave rules, here’s what these changes mean in practice.
- May 1, 2026,
- Updated May 1, 2026 4:40 PM IST
India’s labour law overhaul, effective April 1, 2026, is set to directly impact how employees earn, save, and take time off. The new framework—driven by the Code on Wages and the Occupational Safety, Health and Working Conditions (OSH&WC) Code— reshapes three critical aspects of employment: overtime pay, leave entitlements, and provident fund contributions. Together, these changes aim to standardise workplace practices, improve transparency, and strengthen financial security for workers across sectors. While some employees may notice a slight dip in take-home pay due to higher statutory contributions, the broader objective is to enhance long-term benefits and ensure fair compensation for time worked. Here’s a detailed breakdown of what the new labour codes mean for employees in 2026.
Overtime
The new labour codes bring a clear and measurable benefit for employees working beyond scheduled hours. Any overtime must now be compensated at twice the regular wage rate, with employers required to maintain accurate records of extra hours worked.
The framework defines a standard 48-hour workweek, while allowing daily working hours to extend up to 12 hours, including breaks, as long as the weekly limit is maintained. Importantly, even short durations of extra work are now recognised—any time between 15 and 30 minutes will be rounded up and treated as 30 minutes of overtime.
State governments will continue to define overtime caps, generally ranging from 125 to 144 hours per quarter. Employers are also required to clear all pending dues, including overtime payments, promptly when an employee leaves a job. For employees in roles with frequent overtime — especially blue-collar and shift-based jobs — this translates into more predictable and fair compensation.
Leave benefits
The new labour codes aim to simplify and standardise leave policies across the country. Under the revised framework, employees classified as “workers” will earn one day of leave for every 20 days worked, replacing the fragmented state-level systems that existed earlier.
Leave carry-forward is capped at 30 days, but employees gain added flexibility through leave encashment provisions. Any leave balance beyond 30 days can be converted into cash, and employees may also choose to encash accumulated leave at the end of the year.
The rules also protect employees from losing leave unfairly. If an employer denies a leave request, that leave can be carried forward without any upper limit. While these changes improve clarity and fairness, full benefits will depend on how quickly individual states notify and implement the rules.
MUST READ: Does new wage code mean higher overtime pay from April 2026? Here's what we know
Provident Fund
A key change under the new labour codes is the standardisation of salary structure. Basic pay, dearness allowance (DA), and retaining allowance must now make up at least 50% of total compensation.
This shift increases the base used for calculating provident fund contributions. Both employer and employee contribute 12% of basic pay plus DA to the Employees’ Provident Fund (EPF), which means higher monthly savings toward retirement. However, this may slightly reduce immediate take-home salary.
Gratuity benefits will also improve, as they are linked to last drawn wages. Additionally, fixed-term and contract employees will now become eligible for gratuity after just one year of service, expanding coverage significantly.
Overall, while the changes may impact short-term cash flow, they are designed to strengthen long-term financial security and bring greater consistency to employee benefits.
MUST READ: New labour code could boost your gratuity, but raise your tax bill; here's how
FAQs
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What is changing in overtime pay under the new labour codes from April 1, 2026?
Under the new labour codes, any overtime must be paid at twice the regular wage rate. Employers must also maintain proper records of extra hours worked, making overtime compensation more transparent and predictable for employees.
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How will working hours and overtime limits be calculated in 2026?
The framework keeps a standard 48-hour workweek, while allowing daily work to go up to 12 hours including breaks, provided the weekly cap is followed. Even 15 to 30 minutes of extra work will be counted as 30 minutes of overtime, while state governments will continue to set quarterly overtime caps, usually between 125 and 144 hours.
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What are the new leave rules for employees under the labour law overhaul?
Employees classified as workers will earn one day of leave for every 20 days worked. Leave carry-forward will generally be capped at 30 days, but any balance beyond that can be encashed, and employees may also choose year-end leave encashment.
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Can employees lose their leave if the employer rejects a leave request?
No. If an employer denies a leave request, that leave can be carried forward without any upper limit. This provision is meant to protect employees from unfair loss of earned leave and bring greater fairness to leave management.
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How will the new wage structure affect provident fund, gratuity and take-home salary?
Basic pay, dearness allowance and retaining allowance must together make up at least 50 percent of total compensation. This raises the base for EPF contributions, so both employer and employee will contribute more towards retirement savings. As a result, take-home pay may dip slightly, but gratuity benefits may improve, and fixed-term or contract employees will also become eligible for gratuity after one year of service.
India’s labour law overhaul, effective April 1, 2026, is set to directly impact how employees earn, save, and take time off. The new framework—driven by the Code on Wages and the Occupational Safety, Health and Working Conditions (OSH&WC) Code— reshapes three critical aspects of employment: overtime pay, leave entitlements, and provident fund contributions. Together, these changes aim to standardise workplace practices, improve transparency, and strengthen financial security for workers across sectors. While some employees may notice a slight dip in take-home pay due to higher statutory contributions, the broader objective is to enhance long-term benefits and ensure fair compensation for time worked. Here’s a detailed breakdown of what the new labour codes mean for employees in 2026.
Overtime
The new labour codes bring a clear and measurable benefit for employees working beyond scheduled hours. Any overtime must now be compensated at twice the regular wage rate, with employers required to maintain accurate records of extra hours worked.
The framework defines a standard 48-hour workweek, while allowing daily working hours to extend up to 12 hours, including breaks, as long as the weekly limit is maintained. Importantly, even short durations of extra work are now recognised—any time between 15 and 30 minutes will be rounded up and treated as 30 minutes of overtime.
State governments will continue to define overtime caps, generally ranging from 125 to 144 hours per quarter. Employers are also required to clear all pending dues, including overtime payments, promptly when an employee leaves a job. For employees in roles with frequent overtime — especially blue-collar and shift-based jobs — this translates into more predictable and fair compensation.
Leave benefits
The new labour codes aim to simplify and standardise leave policies across the country. Under the revised framework, employees classified as “workers” will earn one day of leave for every 20 days worked, replacing the fragmented state-level systems that existed earlier.
Leave carry-forward is capped at 30 days, but employees gain added flexibility through leave encashment provisions. Any leave balance beyond 30 days can be converted into cash, and employees may also choose to encash accumulated leave at the end of the year.
The rules also protect employees from losing leave unfairly. If an employer denies a leave request, that leave can be carried forward without any upper limit. While these changes improve clarity and fairness, full benefits will depend on how quickly individual states notify and implement the rules.
MUST READ: Does new wage code mean higher overtime pay from April 2026? Here's what we know
Provident Fund
A key change under the new labour codes is the standardisation of salary structure. Basic pay, dearness allowance (DA), and retaining allowance must now make up at least 50% of total compensation.
This shift increases the base used for calculating provident fund contributions. Both employer and employee contribute 12% of basic pay plus DA to the Employees’ Provident Fund (EPF), which means higher monthly savings toward retirement. However, this may slightly reduce immediate take-home salary.
Gratuity benefits will also improve, as they are linked to last drawn wages. Additionally, fixed-term and contract employees will now become eligible for gratuity after just one year of service, expanding coverage significantly.
Overall, while the changes may impact short-term cash flow, they are designed to strengthen long-term financial security and bring greater consistency to employee benefits.
MUST READ: New labour code could boost your gratuity, but raise your tax bill; here's how