The Ministry of Labour and Employment released a new set of FAQs on 16 March 2026 — the most substantive official guidance since the December 2025 draft rules. Several answers settle questions that practitioners and employers have been navigating without clarity since the Codes came into force in November 2025.
At a Glance — Key Answers
The questions your payroll, HR, and finance teams have been asking — now officially answered.
Does overtime count in the 50% wage calculation?
Yes — included
Is employer PF contribution included in "remuneration" for the 50% rule?
Yes — included
Is gratuity included in "remuneration" for the 50% rule?
No — excluded
Are annual performance bonuses part of "wages"?
No — excluded
Does the new wage definition apply to gratuity from 21 Nov 2025?
Yes — retrospective to Nov 2025
Does FTE gratuity cover contract labour via contractors?
No — direct employees only
Is an 11-month FTE eligible for gratuity?
No — one full year required
Max leave carry forward for workers?
30 days (refused leave: unlimited)
This is an analysis of the Additional FAQs on Labour Codes published by the Ministry of Labour and Employment on 16 March 2026. The document covers 27 questions spanning all four Labour Codes. Below, each answer is presented with its compliance implication — what it means for your payroll, HR, and finance teams in practice.
The Ministry's disclaimer applies: these FAQs are for information purposes only and do not constitute legal documents. Where there is any variance with the text of the relevant Labour Code, the Code prevails. That said, this is the most authoritative official guidance available and is the reference point for compliance teams until final rules are notified.
Does overtime payment count toward the 50% wage floor calculation?
Yes — included
Overtime allowance forms part of the components under Section 2(a) to 2(i) of the Code on Wages. If such allowances, when combined with other exclusions, exceed 50% of total remuneration, the excess is added back into the wage calculation.
Payroll Implication
Overtime cannot be used to "park" additional pay outside the 50% wage floor calculation. If your payroll structure already runs close to the 50% threshold, variable overtime payments could push certain employees over it — and the excess will be reclassified as wages, increasing PF and gratuity liability for that pay period.
What exactly is included in "total remuneration" when applying the 50% wage floor?
Specific inclusions and exclusions confirmed
The Ministry has now confirmed the precise treatment of each component:
Included in "remuneration" for the 50% calculation: Employer PF and pension contributions, and statutory bonus.
Not included: Actual gratuity paid, gratuity shown as a CTC component, ESI contributions, and other retirement benefits.
Comp & Rewards Implication
This is a material clarification. Many CTC structures include gratuity as a visible line item. The Ministry has confirmed that gratuity — whether paid or shown as CTC — does not count toward "total remuneration" for the 50% floor calculation. Employer PF and statutory bonus do. Review your CTC architecture and the remuneration figure you are using as the denominator for the 50% test.
Are annual performance-based incentives part of "wages" under the Labour Codes?
No — excluded from wages
Annual performance-based incentives do not form part of "wages" for computation under the Labour Codes. This is consistent with the earlier FAQ dated 30 December 2025.
Comp & Rewards Implication
Annual variable pay, performance bonuses, and incentive plans remain outside the wage definition for PF, gratuity, and bonus computation purposes. Structures that distinguish between fixed pay and annual variable components are not affected by the Code's wage definition — provided the variable component is genuinely annual and performance-linked, not a disguised salary component.
Can wages and minimum wages be treated as the same thing?
No — they are distinct concepts
"Wages" are defined under Section 2(y) of the Code on Wages and are agreed between employer and employee as per the terms of employment. "Minimum wages" are statutory — fixed by the appropriate government (Central or State). An employer is legally prohibited from paying less than the prescribed minimum wage, but wages and minimum wages are not interchangeable terms.
Who is eligible for overtime — only workers, or does it extend to supervisory and managerial employees as well?
Extends to all employees whose minimum wage is fixed under the Code
Any employee — including workers — whose minimum rate of wages is fixed under the Code on Wages, 2019 is eligible for overtime. This includes supervisory and managerial staff where their minimum wage is regulated under the Code.
HR / Payroll Implication
This is broader than the position under the old Factories Act, which limited overtime eligibility more narrowly. Review overtime eligibility and records across your supervisory population.
Does the revised definition of "wages" apply to gratuity calculation from 21 November 2025?
Yes — effective 21 November 2025
Gratuity based on the revised definition of wages under the Labour Codes will be applicable from 21 November 2025 — the date of implementation. This means gratuity calculations for employees separating on or after that date must use the new wage definition, even for service rendered before that date.
Finance Implication
This is one of the most significant clarifications in this FAQ document. Gratuity for any employee exiting on or after 21 November 2025 is calculated at the
last drawn wage under the new definition. If the new wage definition results in a higher "wage" figure than the pre-Code calculation, the gratuity payout is higher — for all employees, not just those hired after November 2025. Actuarial valuations and provisions must be updated immediately to reflect this.
Are variable components like overtime included in "wages" for the purposes of the Labour Codes?
Yes — with the 50% rule applied
Overtime allowance forms part of the Section 2(a) to 2(i) components. If such an allowance, when combined with other exclusions, exceeds 50% of total remuneration, the excess over 50% is added to the wage calculation. The 50% rule acts as the governing mechanism.
Does fixed-term employment (FTE) cover contract labour engaged through contractors, or only direct employees?
Direct employees only — not contract labour
Fixed-term employment under the Labour Codes covers only employees directly engaged by the employer. Contract workers engaged through contractors do not fall within the fixed-term employment framework.
HR / Legal Implication
Organisations that engage workers through contractors are not subject to the FTE gratuity-after-one-year rule for those workers. However, gratuity for contract labour remains the contractor's obligation (not the principal employer's) under the Code on Social Security — see Q16 below. The one-year gratuity rule applies only to your directly hired fixed-term employees.
Does gratuity calculation under the new Code apply prospectively or retrospectively?
Effective 21 November 2025 — the date of Code implementation
Gratuity will be calculated as per the provisions of the Code on Social Security, 2020 from 21 November 2025. This confirms that the new framework applies to all gratuity payments made on or after that date, calculated on the basis of the last drawn wages under the new wage definition.
How will ESI coverage be governed until the final rules are notified?
Existing wage ceiling of Rs 21,000/month continues to apply
From 21 November 2025, the definition of wages under the Code on Social Security applies. However, the existing ESI wage ceiling of Rs 21,000 per month (as previously notified) continues to govern ESI coverage until further notification under the new rules.
Payroll Implication
ESI contributions and coverage thresholds remain unchanged for now. The new wage definition will, however, affect how "wages" are computed for the purposes of assessing whether an employee falls within or outside the Rs 21,000 threshold.
For fixed-term employees, is gratuity payable on completion of exactly one year, or is more than one year required?
Exactly one year from start of contract
A fixed-term employee is eligible for gratuity if he or she renders service under the contract for a period of one year from the start of the contract. The Ministry has confirmed "one year" — not "more than one year."
Critical Implication
An FTE who completes exactly 365 days is eligible. An FTE who exits before completing one year — including the common 11-month contractual structure — is not. Organisations using 11-month contracts specifically to avoid gratuity liability should take legal advice: the Ministry's confirmation that one full year triggers eligibility does not change the 11-month position, but the practice will likely attract scrutiny as enforcement begins.
Can states levy cess on gig and platform workers, creating a dual burden on aggregators?
Central Government only — state cess is not provided for
Under Section 114(4) of the Code on Social Security, 2020, the contribution to be paid by aggregators for gig and platform worker schemes will be notified by the Central Government alone. The funds will be credited to a Social Security Fund set up by the Central Government. The framework does not provide for state-level cess on aggregators.
For contract labour, does gratuity liability fall on the principal employer or the contractor?
The contractor is responsible — not the principal employer
Under Section 53 of the Code on Social Security, 2020, the employer — meaning the contractor — pays gratuity to contract labour upon completing five years of continuous service. The rate is 15 days' wages for each completed year of service, based on last drawn wages.
Principal Employer Note
While the legal liability for gratuity rests with the contractor, principal employers should verify that their contractor agreements address this obligation. In practice, unmet gratuity liabilities of contractors have historically created reputational and operational exposure for principal employers.
Is pre-November 2025 service calculated under the old Gratuity Act, and post-November 2025 service under the new Code?
Gratuity is calculated on last drawn wages under the new Code — for all service
The Ministry has clarified that an employee will be paid gratuity based on the rate of wages last drawn at the time of superannuation, retirement, resignation, or death, on and after 21 November 2025 — as per the Code on Social Security. The calculation is based on last drawn wages under the new definition, applied to total years of service, not split by the date of the Code's commencement.
Finance Implication
This confirms that the new, higher wage definition applies to gratuity calculations for the entire service period of employees who separate on or after 21 November 2025. There is no split calculation between pre- and post-Code service. This will increase gratuity payouts for many long-serving employees whose basic pay is now computed differently under the 50% rule. Provision must be recalculated accordingly.
What counts as "remuneration in kind" under the wages definition?
Examples now confirmed officially
The Ministry has confirmed that benefits provided under the terms of employment such as food coupons, ration items, and mobile recharge would constitute remuneration in kind.
HR Implication
Any benefit provided as part of employment terms — whether cash or non-cash — may be captured within the wages definition. Review perquisite and benefit structures to ensure that non-cash benefits provided as part of CTC are properly assessed against the wage definition.
Do leave provisions under the OSH Code apply to all employees, including managerial and supervisory staff?
Workers only — supervisors earning above Rs 18,000/month are excluded
Leave-related provisions under the OSH & WC Code, 2020 apply to workers as defined under the Code, and to supervisors earning no more than Rs 18,000 per month. Managerial and supervisory staff earning above Rs 18,000 are not covered by the Code's leave provisions. Sales promotion employees and working journalists are included within the definition of "worker."
HR Implication
Many organisations apply uniform leave policies across all employees. For compliance purposes, the statutory leave entitlements under the OSH Code apply only to the "worker" population as defined. Managerial and senior supervisory staff above the Rs 18,000 threshold are governed by their employment contracts and company leave policy — not the statutory framework. Review your leave policy documentation to ensure the statutory and contractual layers are clearly distinguished.
What is the maximum number of days of leave that can be carried forward to the next year?
30 days — with an important exception for refused leave
A worker can carry forward up to 30 days of leave to the succeeding calendar year. However, where a worker has applied for leave and the employer has not granted it, that refused leave can be carried forward without any limit.
HR Implication
The 30-day carry-forward cap is straightforward. The exception for refused leave is the compliance risk: if line managers routinely decline leave applications without formal process, the organisation may accumulate uncapped leave liability. Ensure leave approval processes are documented, and that refusals are formally recorded and justified — not simply ignored.
Who is eligible for leave encashment — all employees, or only workers?
Workers only — including sales promotion employees
Leave encashment under the OSH & WC Code, 2020 is available to workers as defined. Sales promotion employees are expressly included within the definition of "worker." Employees classified as managerial or supervisory with wages above Rs 18,000 per month are not entitled to statutory leave encashment under the Code.
Is the crèche facility obligation dependent on the gender composition of the workforce?
No — crèche is available to all employees irrespective of gender
The crèche facility obligation under the OSH Code is triggered purely by headcount (50 or more employees) and is available to employees irrespective of their gender. It is not contingent on the number of women employees in the establishment.
HR / Facilities Implication
Any establishment with 50 or more employees must provide or arrange crèche facilities — regardless of whether the workforce is predominantly male. This is broader than the Maternity Benefit Act's crèche provision, which was linked to the number of women employees.
At what point does overtime become payable — after 8 hours in a day, or after 48 hours in a week?
Either threshold triggers overtime — whichever is crossed first
Overtime is payable when a worker works more than 8 hours in any day as a daily wager, or more than 48 hours in any week. Whichever threshold is crossed first triggers the overtime rate. Overtime must be paid at twice the normal rate of wages and must be paid at the end of each wage period.
Payroll / Operations Implication
The double-rate overtime obligation is firm and must be reflected in payroll calculations at the end of each wage period — not deferred. Review your daily and weekly hour-tracking systems to ensure overtime eligibility is captured accurately at both the daily and weekly level.
Where a State law allows more favourable leave carry-forward than the OSH Code, which prevails?
The Code prevails — unless the state provision is more favourable to the employee
The provisions of the OSH & WC Code, 2020 will prevail over any state law that is inconsistent with the Code. However, if a state law provides more favourable terms to the employee (for example, a 60-day carry-forward limit compared to the Code's 30-day limit), the employee is entitled to the benefit of the more favourable state provision.
Multi-State Employer Implication
Organisations operating across multiple states need to track both central and state rules and apply the more favourable standard for each state. A single national leave policy will not be sufficient where state provisions are more beneficial to employees.
Is there a maximum cap on the number of leave days that can be encashed?
No maximum cap on encashment
There is no prescribed maximum limit for leave encashment under the OSH & WC Code, 2020. Leave exceeding 30 days that was applied for but not granted by the employer can be encashed at the end of the calendar year. At the time of separation from service, the worker is entitled to encash all leave standing to their credit.
Where Central and State rules differ on the age threshold for annual health check-ups, which applies?
Depends on which government is the "Appropriate Government" for the establishment
Central rules apply to establishments where the Central Government is the Appropriate Government. State rules apply where the State Government is the Appropriate Government. The applicable threshold is determined by the regulatory category of the establishment, not by choice.
HR / Compliance Implication
Multi-state employers should confirm the Appropriate Government designation for each of their establishments and apply the health check age threshold accordingly. This is a state-by-state determination, not a uniform national standard.
Fixed-term employment under the Labour Codes covers only employees directly engaged by the employer. Contract workers engaged through contractors do not fall within the fixed-term employment framework.
Gratuity will be calculated as per the provisions of the Code on Social Security, 2020 from 21 November 2025. This confirms that the new framework applies to all gratuity payments made on or after that date, calculated on the basis of the last drawn wages under the new wage definition.
From 21 November 2025, the definition of wages under the Code on Social Security applies. However, the existing ESI wage ceiling of Rs 21,000 per month (as previously notified) continues to govern ESI coverage until further notification under the new rules.
A fixed-term employee is eligible for gratuity if he or she renders service under the contract for a period of one year from the start of the contract. The Ministry has confirmed "one year" — not "more than one year."
Under Section 114(4) of the Code on Social Security, 2020, the contribution to be paid by aggregators for gig and platform worker schemes will be notified by the Central Government alone. The funds will be credited to a Social Security Fund set up by the Central Government. The framework does not provide for state-level cess on aggregators.
Under Section 53 of the Code on Social Security, 2020, the employer — meaning the contractor — pays gratuity to contract labour upon completing five years of continuous service. The rate is 15 days' wages for each completed year of service, based on last drawn wages.
The Ministry has clarified that an employee will be paid gratuity based on the rate of wages last drawn at the time of superannuation, retirement, resignation, or death, on and after 21 November 2025 — as per the Code on Social Security. The calculation is based on last drawn wages under the new definition, applied to total years of service, not split by the date of the Code's commencement.
The Ministry has confirmed that benefits provided under the terms of employment such as food coupons, ration items, and mobile recharge would constitute remuneration in kind.