Myth busted: How your salary has changed under new labour codes vs EPF Scheme 2026

India's new labour codes and the EPF Scheme, 2026 are often being confused, even though they address different aspects of employee compensation. While the labour codes redefine wages and can alter salary structures by increasing basic pay and statutory benefits, the new EPF Scheme primarily introduces procedural changes to provident fund contributions and payroll compliance. Here's what has actually changed — and what remains the same.

New labour codes

The biggest change under India's four labour codes is the introduction of a uniform definition of wages, effective from November 21, 2025. Under the Code on Wages, 2019, basic salary, dearness allowance (DA) and retaining allowance must together account for at least 50% of an employee's total remuneration.

Earlier, many companies kept the basic salary low and increased allowances such as HRA, travel and special allowances to maximise employees' monthly take-home pay. Under the new framework, this is no longer possible. If excluded allowances exceed 50% of total remuneration, the excess is added back to wages for calculating statutory benefits.

The result is a revised salary structure without changing the employee's overall Cost to Company (CTC). Employees whose basic pay was below the 50% threshold are likely to see higher basic salaries, increased EPF deductions and larger gratuity benefits.

 

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While the higher statutory deductions may slightly reduce monthly take-home salary, they also improve long-term retirement savings. The reforms aim to strengthen social security, improve transparency and create a uniform wage definition across industries.

New Labour Codes – Key Changes

Parameter	Before	After the New Labour Codes
Wage definition	Multiple definitions under different labour laws	Uniform definition of "wages" across labour codes
Basic salary	Could be 30-40% of CTC	Must be at least 50% of total remuneration
Allowances	Could exceed 50% of salary	Excess over 50% added back to wages
Provident Fund (PF)	Based on lower basic salary in many cases	Higher basic salary may increase PF contributions
Gratuity	Lower due to lower basic pay	Higher gratuity as it is linked to wages
Take-home salary	Generally higher	May reduce slightly because of higher statutory deductions
Overall CTC	As per employer policy	No change in total CTC; only salary structure changes
Main objective	Flexible salary structuring	Improve social security, transparency and retirement savings

EPF Scheme 2026

The Employees' Provident Fund (EPF) Scheme, 2026, notified on June 29 under the Code on Social Security, 2020, does not overhaul the existing contribution system.

A common misconception is that PF contributions above ₹1,800 per month have only now become voluntary. In reality, contributions on wages above the statutory wage ceiling of ₹15,000 per month have been voluntary since the Employees' Provident Funds Scheme, 1952.

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The key reform is that the new scheme explicitly allows either the employer or the employee to independently discontinue or reduce voluntary PF contributions above the statutory ceiling. Previously, exiting such arrangements generally depended on mutual consent or legal interpretation.

The scheme also aligns EPF calculations with the new wage definition under the labour codes. The contribution base shifts from the earlier concept of "basic wages" to the broader definition of "wages" under the Code on Social Security, incorporating the 50% wage rule.

EPF Scheme, 2026 – Key Changes

Parameter	Earlier	EPF Scheme, 2026
Mandatory EPF contributions	Existing rules under EPF Scheme, 1952	No change in the core contribution framework
Voluntary PF contributions	Exiting voluntary contributions required mutual agreement or legal interpretation	Employer or employee can independently discontinue or reduce voluntary contributions above the wage ceiling
Wage definition	Based on "basic wages"	Linked to the broader definition of "wages" under the Code on Social Security
Employer's matching contribution	Often assumed for voluntary PF	Additional employer contribution is optional unless required by contract or company policy
Payroll reporting	Existing reporting formats	Statutory and voluntary PF contributions must be reported separately in payroll and Form V
Compliance	Standard EPF filings	Greater payroll transparency and compliance requirements
Main objective	Provident fund administration	Clarify voluntary PF rules and streamline compliance

Another clarification is that employers are not automatically required to match an employee's additional voluntary PF contribution unless such an obligation exists under the employment contract or company policy.

To improve transparency, employers must separately report statutory and voluntary PF contributions in payroll records, electronic remittances and the newly introduced Form V return.

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What changes for employees?

Aspect	Before	After
Basic salary	Often 30-40% of CTC	Minimum 50% of total remuneration
Allowances	Could exceed 50% of salary	Excess added back to wages
PF contribution	Lower if basic salary was low	May increase due to higher wage component
Gratuity	Lower	Higher
Monthly take-home	Higher	May reduce slightly
Retirement savings	Lower	Higher

The bottom line

The two reforms complement each other but address different issues. The new labour codes primarily affect salary structure by increasing the wage component used for calculating PF and gratuity, which may reduce monthly take-home pay while improving retirement benefits. The EPF Scheme, 2026, on the other hand, focuses on streamlining provident fund administration, clarifying voluntary contribution rules and strengthening payroll compliance rather than changing mandatory contribution rates. Together, they modernise India's wage and social security framework without altering employees' overall CTC.

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