Consider this: a CFO at a mid-size IT company in Bengaluru restructured salaries in early 2026 to bring basic wages in line with the Code on Wages requirement. What she discovered was that for 34 of her 90 employees, the basic salary had been sitting below 40% of gross CTC since the company adopted a high-allowance structure years ago to reduce PF outflow. Bringing those 34 employees to 50% basic, as the new salary structure 2026 framework requires, increased the monthly employer PF contribution by Rs. 1.87 lakh. The gratuity liability also shifted meaningfully. The take-home pay of those 34 employees dropped because their net-of-PF income changed.
That is exactly the kind of impact the new salary structure 2026 creates in practice. The Code on Wages, 2019, which forms part of India’s four Labour Codes consolidation, mandates that basic wages must constitute at least 50% of total remuneration. For companies that have historically kept basic salary low to minimize PF liability, this rule forces a structural rethink of CTC design, payroll budgets, and employee communication.
Specifically, this guide explains what the new salary structure 2026 rule means, which companies it applies to, how it changes PF, gratuity, bonus, and take-home calculations, what the Central Government’s latest draft rules propose, and what HR and payroll teams must do to stay ahead of it.
Need help restructuring your CTC to comply with the new salary structure rules? Futurex handles payroll restructuring and compliance for companies across India. First consultation is free.
What the New Salary Structure 2026 Rule Actually Says
Importantly, the Code on Wages, 2019 introduces a unified definition of wages that applies across all four Labour Codes. Under this definition, wages means all remuneration paid in cash. Specifically, the Code states that the sum of certain exclusions from wages (such as HRA, conveyance allowance, overtime, and other special allowances) cannot exceed 50% of total remuneration. Consequently, the basic wage component must constitute at least 50% of the total CTC.
In practice, therefore, this means a company paying an employee a gross CTC of Rs. 10 lakh per year must ensure that basic wages are at least Rs. 5 lakh per year, or Rs. 41,667 per month. If the current basic salary for that employee is Rs. 30,000 per month against a gross of Rs. 83,333, the company must restructure the CTC to bring basic up to Rs. 41,667 before the rule takes full effect.
⚠ Implementation status in 2026: The four Labour Codes including the Code on Wages have been passed by Parliament but implementation remains state-dependent. As of March 2026, several states are in the process of notifying their rules. The Central Government published draft rules in early 2026 proposing revised allowance limits. Employers must track their specific state’s notification to know the exact effective date. However, preparing the CTC restructuring now is strongly advisable because the transition, once notified, requires immediate compliance.
How the New Salary Structure 2026 Changes PF Calculations
The most direct financial impact of the new salary structure 2026 rule falls on PF calculations. Under the Employees Provident Fund Act, contributions are calculated on basic wages plus dearness allowance. Consequently, a higher basic wage means higher PF contributions from both employer and employee.
| Scenario | Current Structure | Under New Rule |
|---|---|---|
| Gross monthly CTC | Rs. 50,000 | Rs. 50,000 |
| Basic salary | Rs. 15,000 (30%) | Rs. 25,000 (50%) |
| Employee PF (12%) | Rs. 1,800 | Rs. 3,000 |
| Employer PF (12%) | Rs. 1,800 | Rs. 3,000 |
| Employee take-home impact | Higher | Lower by Rs. 1,200/month |
For example, for an employee earning Rs. 50,000 gross per month, the restructuring increases monthly PF by Rs. 1,200 on the employee side and Rs. 1,200 on the employer side. Across a 100-person company where 40 employees need restructuring, that is an additional Rs. 48,000 per month in employer PF outflow, or Rs. 5.76 lakh per year. This is a significant budget impact that workforce planning must account for well before implementation.
How the New Salary Structure 2026 Affects Gratuity
Specifically, gratuity under the Payment of Gratuity Act is calculated as 15 days of last drawn wages for each completed year of service. Wages for gratuity purposes means basic wages plus dearness allowance. Consequently, a higher basic wage under the new salary structure 2026 directly increases the gratuity payout for every eligible employee.
For example, for an employee who has been with the company for 8 years at a basic of Rs. 15,000 per month, the gratuity works out to Rs. 69,231. Under the restructured basic of Rs. 25,000 per month, the same employee’s gratuity becomes Rs. 1,15,385. That is a difference of Rs. 46,154 per employee. Notably, the liability is not a future cost that can be deferred. It accrues from the date the restructured wages apply and must reflect in the company’s gratuity provision.
How the New Salary Structure 2026 Affects Bonus
Similarly, the Payment of Bonus Act calculates bonus on basic wages plus dearness allowance for employees earning up to Rs. 21,000 per month. Specifically, the minimum bonus is 8.33% of annual wages. Under the new salary structure 2026, if the higher basic wages bring some employees above the Rs. 21,000 coverage threshold, they exit the mandatory bonus calculation framework. Conversely, employees already above the threshold see their bonus base increase.
For ESIC, however, the coverage threshold uses gross wages rather than basic. However, restructuring that increases basic at the expense of allowances does not change gross wages. Consequently, ESIC applicability for individual employees remains unchanged by the restructuring unless the CTC itself changes.
The Central Government’s 2026 Draft Rules on Allowance Limits
Specifically, in early 2026, the Central Government published draft rules under the Code on Wages that propose specific definitions for which components qualify as allowances and therefore count toward the 50% cap. Importantly, the draft rules propose that components like house rent allowance, conveyance allowance, children education allowance, and certain other special allowances count as exclusions from wages. If those exclusions together exceed 50% of gross remuneration, the excess gets treated as wages for statutory calculation purposes.
Additionally, the draft proposes clearer guidance on how overtime, commission, and variable pay components fit into the wages definition. For companies with significant variable pay structures, this matters because it determines whether incentive-heavy compensation designs remain compliant under the new framework. Specifically, companies should review the draft rules as they relate to their existing CTC components and assess whether any reclassification is needed.
Which Companies Does the New Salary Structure 2026 Apply To?
Notably, the Code on Wages applies to all establishments in India regardless of size, sector, or employee count. Consequently, the new salary structure 2026 rule is not limited to large companies or specific industries. It applies equally to a 15-person startup and a 5,000-person manufacturing unit.
In practice, the impact is more significant for companies that deliberately kept basic salary low as a PF optimization strategy. Companies in the IT, BPO, retail, and hospitality sectors are among those most commonly found with basic salaries below 50% of gross CTC. Manufacturing and construction companies, on the other hand, often already have basic wages at or above 50% because their wage structures historically followed government wage schedules.
What HR and Payroll Teams Must Do to Prepare
Preparing for the new salary structure 2026 requirement is a multi-step process that HR, payroll, finance, and legal teams must coordinate on together. Starting early matters because the downstream effects on PF, gratuity, bonus, and take-home require employee communication, payroll system changes, and budget revision.
Five Steps to Prepare for the New Salary Structure
Step 1: Audit current CTC structures. For every employee, calculate the current basic wage as a percentage of gross CTC. Identify all employees where basic falls below 50%. This is your restructuring universe.
Step 2: Model the financial impact. Calculate the increase in employer PF, gratuity provision, and bonus liability for the restructured salaries. Present this to finance as a budget requirement before implementation.
Step 3: Decide on the restructuring approach. Specifically, companies have two options. One is to increase basic while reducing allowances, keeping gross CTC constant. This lowers take-home for affected employees and requires careful communication. The other option is to increase basic while holding allowances constant, which increases gross CTC and total cost. Each approach has different employee relations and budget implications.
Step 4: Communicate to employees. Changes to take-home pay require clear, advance communication. Specifically, employees must understand why the basic is increasing, how it affects their in-hand salary, and how their PF and gratuity benefits improve as a result.
Step 5: Update payroll and HRMS systems. Implement the revised salary structures in your payroll software. Verify that PF, ESIC, TDS, and gratuity calculations all update correctly for each affected employee before the first payroll run under the new structure.
For a complete understanding of how the new Wage Code changes payroll compliance across all four Labour Codes, our guide on the New Wage Code 2026 and the 50% allowance rule impact covers the full framework. For companies that need payroll restructuring handled end-to-end, our payroll management service covers audit, restructuring, system updates, and ongoing compliance.
Frequently Asked Questions About New Salary Structure 2026
What is the new salary structure rule in 2026?
The new salary structure 2026 rule under the Code on Wages, 2019 requires that basic wages constitute at least 50% of an employee’s total remuneration. Allowances such as HRA, conveyance, and special allowances collectively cannot exceed 50% of total CTC. Companies with basic salaries below this threshold must restructure their CTC to comply once the Code is notified in their state.
Is the 50% basic salary rule mandatory in 2026?
The 50% basic salary rule under the Code on Wages is law. However, implementation depends on state-level notification of rules. As of March 2026, implementation is underway state by state. Employers must track their state government’s official notification for the exact effective date. However, preparing the CTC restructuring now is advisable because once notified, compliance becomes immediately mandatory with no grace period for transition.
How does the new salary structure affect employee take-home pay?
For employees where the restructuring increases basic while reducing allowances to keep gross CTC constant, take-home pay decreases because PF deduction on their salary increases. For example, an employee with a gross of Rs. 50,000 whose basic increases from Rs. 15,000 to Rs. 25,000 sees an additional Rs. 1,200 per month deducted toward PF. Their gratuity and long-term retirement savings increase correspondingly, but the immediate net salary impact is negative.
How does the new salary structure 2026 affect PF contributions?
PF contributions are calculated on basic wages plus dearness allowance. Therefore, a higher basic wage under the new salary structure 2026 directly increases both the employer and employee PF contribution. For an employee moving from Rs. 15,000 to Rs. 25,000 basic on a Rs. 50,000 gross CTC, both employer and employee PF increase by Rs. 1,200 per month each. For a company with 50 such employees, that is an additional Rs. 60,000 per month in employer PF outflow.
What is the new salary structure for the private sector in 2026?
The new salary structure 2026 applies equally to private sector companies of all sizes. There is no separate private sector framework. The Code on Wages requirement that basic wages be at least 50% of total remuneration applies to all employers. Private sector companies that have historically kept basic salary low at 30% to 40% of CTC to minimize PF outflow will see the largest impact on both employer costs and employee take-home when they restructure.
Does the new salary structure rule affect ESIC coverage?
ESIC coverage uses gross wages rather than basic wages as the salary ceiling. Importantly, restructuring that shifts pay from allowances to basic without changing gross CTC does not affect ESIC coverage for individual employees. However, if the restructuring also increases gross CTC, employees near the Rs. 21,000 gross wages ceiling may cross it and exit ESIC coverage. Check each employee’s gross wages after restructuring to confirm ESIC applicability.
Need Help Restructuring Your CTC for the New Salary Structure Rules?
The new salary structure 2026 changes PF, gratuity, bonus, and take-home across your entire workforce. Futurex Management Solutions handles CTC audits, restructuring models, payroll system updates, and employee communication for companies across India. First consultation is free. No commitment required.