The recent Labour Code 2025 which came into manufacture on November 21, 2025, requires every employer to calculate wages as 50% of the total CTC for computing gratuity, pension and quite lots of social security advantages.
In a press inaugurate dated November 21, 2025, the authorities gave: “Uniform Definition of Wages: “Wages” now encompass basic pay, dearness allowance, and maintaining allowance; 50% of the total remuneration (or such percentage as can be notified) can be added encourage to compute wages, guaranteeing consistency in calculating gratuity, pension, and social security advantages.”
This recent definition raises the ask whether bonus and leave encashment parts are to be integrated in the definition of wages or it’s a ways saved outdoors in the exclusion record.
Per Sumeet Hemkar, Partner, Deloitte India, the labour codes outline the term ‘wages’ broadly and this definition additionally strategies a particular record of exclusions, capped through a calculation mechanism.
Hemkar says: “This leaves the treatment of parts and the respective amounts a cramped bit dynamic. While statutory bonus is integrated in wages, any discretionary bonus/incentive that is now not part of the terms of employment is excluded.”
Per Hemkar, bonus/incentives are now not namely referred to, on the different hand, if these are in the nature of rate or discretionary bonus, then they’re excluded, else they’re ceaselessly integrated.
Per Pooja Ramchandani, Partner, Shardul Amarchand Mangaldas & Co, Bonus and incentives fall beneath the exclusions part of the definition of wages in the occasion that they enact now not produce part of the terms of employment.
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What about leave encashment?
Per Ramchandani leave encashment will likely be paid at the discontinue of employment and thus by nature they’re discontinue of tenure funds and desires to be excluded.
Then again, the mission reverses if leave encashment is paid with out discontinue of employment. Ramchandani says: “…Where there is annual encashment like beneath the Labour Codes, leave encashment can be notion about as wages.”
Hemkar says that leave encashment is additionally now not namely referred to, and whereas it appears to be integrated, on the different hand, a clarification from the Ministry of Labour & Employment is predicted.
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Labour code 2025 has a cap on excluded allowances
Per Hemkar, the labour codes additionally introduce a cap of 50% (or such percentage as prescribed by the correct authorities) on excluded allowances, that design that if the specified excluded allowances exceed 50% of the total remuneration, the excess is required to be added encourage to ‘wages’.
Hemkar says: “That is to make certain a obvious level of wages across workers. Thanks to this, the extent of exclusion of any ingredient might per chance per chance vary from case to case and additionally depend on the wage structure.”
Ramchandani has the same opinion with Hemkar and adds: “Then again, where the total exclusions taken together exceed 50% of the total remuneration, the quantity which exceeds 50% will likely be notion about as wages.”
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Bonus and leave encashment calculator after recent Labour Code 2025
The table beneath has four scenarios reckoning on how extraordinary percentage of CTC is your bonus/incentive. We obtain taken a CTC of Rs 10 lakh to display conceal the impact of before and after. The impact on leave encashment money is additionally confirmed.
In quite lots of the scenarios, the bonus ingredient is both going up or final the identical, however the allowance ingredient is reducing in all circumstances since CTC is fixed.
Scene 1: Bonus is 10% of CTC
| Particulars | Old – Bonus / incentive @ 10% of CTC | Fresh Labour code (INR) | Extend / (decrease) in contrast with primitive |
| Frequent wage (35% existing and 50% recent – of CTC) | 3,50,000 | 5,00,000 | 1,50,000 |
| Bonus/ incentive (assuming employer to alter wages through quite lots of allowances and basic wage) | 1,00,000 | 2,50,000 | – |
| Allowances (along with employer PF) | 5,50,000 | 2,50,000 | (1,50,000); decrease |
| Total CTC | 10,00,000 | 10,00,000 | – |
| Employee PF (12% of basic wage) | 42,000 | 60,000 | 18,000 |
| Employer PF (12% of basic wage) | 42,000 | 60,000 | 18,000 |
| In hand wage (before tax) | 9,16,000 | 8,80,000 | (36,000); decrease |
| Statutory advantages | |||
| – PF | 84,000 | 1,20,000 | 36,000 |
| – Gratuity (assuming for 5 yrs) | 84,135 | 1,20,192 | 36,058 |
| – Recede encashment (for 15 days) | 14,583 | 20,833 | 6,250 |
Source: Deloitte
Scenario 2: Bonus is 15% of CTC
| Particulars | Old – Bonus / incentive @ 15% of CTC | Fresh Labour code 2025 (INR) | Extend / (decrease) in contrast with primitive |
| Frequent wage (35% existing and 50% recent – of CTC) | 3,50,000 | 5,00,000 | 1,50,000 |
| Bonus/ incentive (assuming employer to alter wages through quite lots of allowances and basic wage) | 1,50,000 | 2,50,000 | – |
| Allowances (along with employer PF) | 5,00,000 | 2,50,000 | (1,50,000); decrease |
| Total CTC | 10,00,000 | 10,00,000 | – |
| Employee PF (12% of basic wage) | 42,000 | 60,000 | 18,000 |
| Employer PF (12% of basic wage) | 42,000 | 60,000 | 18,000 |
| In hand wage (before tax) | 9,16,000 | 8,80,000 | (36,000); decrease |
| Statutory advantages | |||
| – PF | 84,000 | 1,20,000 | 36,000 |
| – Gratuity (assuming for 5 yrs) | 84,135 | 1,20,192 | 36,058 |
| – Recede encashment (for 15 days) | 14,583 | 20,833 | 6,250 |
Source: Deloitte
Scenario 3: Bonus is 20% of CTC
| Particulars | Old – Bonus / incentive @ 20% of CTC | Fresh labour code 2025 (INR) | Extend / (decrease) in contrast with primitive |
| Frequent wage (35% existing and 50% recent – of CTC) | 3,50,000 | 5,00,000 | 1,50,000 |
| Bonus/ incentive (assuming employer to alter wages through quite lots of allowances and basic wage) | 2,00,000 | 2,50,000 | – |
| Allowances (along with employer PF) | 4,50,000 | 2,50,000 | (1,50,000) |
| Total CTC | 10,00,000 | 10,00,000 | – |
| Employee PF (12% of basic wage) | 42,000 | 60,000 | 18,000 |
| Employer PF (12% of basic wage) | 42,000 | 60,000 | 18,000 |
| In hand wage (before tax) | 9,16,000 | 8,80,000 | (36,000) |
| Statutory advantages | |||
| – PF | 84,000 | 1,20,000 | 36,000 |
| – Gratuity (assuming for 5 yrs) | 84,135 | 1,20,192 | 36,058 |
| – Recede encashment (for 15 days) | 14,583 | 20,833 | 6,250 |
Source: Deloitte
Scenario 4: Bonus is 25% of CTC
| Particulars | Old – Bonus / incentive @ 25% of CTC | Fresh labour code 2025 (INR) | Extend / (decrease) in contrast with primitive |
| Frequent wage (35% existing and 50% recent – of CTC) | 3,50,000 | 5,00,000 | 1,50,000 |
| Bonus/ incentive (assuming employer to alter wages through quite lots of allowances and basic wage) | 2,50,000 | 2,50,000 | – |
| Allowances (along with employer PF) | 4,00,000 | 2,50,000 | (1,50,000) |
| Total CTC | 10,00,000 | 10,00,000 | – |
| Employee PF (12% of basic wage) | 42,000 | 60,000 | 18,000 |
| Employer PF (12% of basic wage) | 42,000 | 60,000 | 18,000 |
| In hand wage (before tax) | 9,16,000 | 8,80,000 | (36,000) |
| Statutory advantages | |||
| – PF | 84,000 | 1,20,000 | 36,000 |
| – Gratuity (assuming for 5 yrs) | 84,135 | 1,20,192 | 36,058 |
| – Recede encashment (for 15 days) | 14,583 | 20,833 | 6,250 |
Soirce: Deloitte
Bonus and leave encashment quantity might per chance per chance additionally additionally be diminished after recent labour code 2025 implementation?
The impact on bonus, incentives, and leave encashment submit the labour codes will depend on the employer’s policy and the limitations that the codes area on reductions.
Hemkar says that whereas the term CTC is now not outlined in the codes, the benchmark of 50% of the final remuneration to be in the nature of wages (as outlined) might per chance per chance suggested employers to alter the quantum of diverse parts of wage.
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Hemkar says: “While the odd expectation is that employers might per chance per chance peaceable now not sever encourage the final pay of an employee, some parts like bonus and incentives might per chance per chance require realignment to accommodate the upward thrust in the quantum of wages beneath the labour codes.”
Hemkar gives an example. If the recent Labour Code 2025 finally ends up in a upward push in the employer’s costs owing to the 50% wage rule (that might per chance per chance additionally lead to increased PF contributions, increased gratuity payout etc), the employer might per chance per chance alter the wage structure.
Therefore, the adjustment of parts of wage might per chance per chance vary from case to case. Hemkar says that it might per chance per chance per chance per chance additionally be helpful to search how the authorities responds to wage restructuring and whether it’d be legally acceptable.
Per Ramchandani from Shardul Amarchand Mangaldas & Co., in elaborate to comply with the wages definition the excess ingredient will might per chance per chance obtain to be treated as wages.
Ramchandani says: “So as to protect the total remuneration intact so that there is now not any such thing as a bearing on the monetary outlay, a low cost of bonus/incentive might per chance per chance turn out to be necessary. Recede encashment is in overall now not part of CTC and might per chance per chance additionally’t be diminished since it’s a statutory entitlement and reckoning on the quantity of unutilized leave.”
