On 16 March 2026, the Ministry of Labour and Employment published a fresh batch of Additional FAQs on the four Labour Codes. These clarifications landed four months after the Codes took effect on 21 November 2025. They address grey areas that had been tripping up HR teams since.
Six rulings in this batch directly affect how you run payroll, structure CTC, and calculate exit settlements:
- Overtime allowance counts inside the 50% wage floor calculation
- Every employee whose minimum wage is fixed under the Code qualifies for overtime pay, including supervisors and managers
- Fixed-term (contract) workers become gratuity-eligible after just one year of service, not five
- The ESI wage threshold stays at ₹21,000 per month until new rules arrive
- Annual performance incentives are not “wages” under the Codes
- Leave carry-forward caps at 30 days, but there is no ceiling on encashment at separation
The rest of this blog walks through each ruling and what it means for your payroll setup.
Key Takeaways
- The 50% wage rule includes overtime allowance, employer PF, and statutory bonus in the total remuneration denominator, but excludes gratuity and ESI
- Overtime at 2x the normal rate now applies to all employees (not just floor-level workers) if their minimum wage is prescribed under the Wages Code
- Fixed-term employees get gratuity after 1 year; permanent staff still need 5 years of continuous service
- Gratuity calculates on the last-drawn wage under the new definition, even for service rendered before November 2025
- The ₹21,000 ESI threshold continues unchanged for now
How Does the 50% Wage Rule Work After the March FAQ?
The Code on Wages, 2019 says basic salary plus dearness allowance must be at least 50% of total remuneration. A thematic analysis by SCC Online noted that the March FAQ settled a question circulating since November: what counts as “total remuneration” for this calculation?
The answer: overtime allowance, employer PF contribution, and statutory bonus all count toward the denominator. Gratuity and ESI contributions do not.
Consider an example: a mid-level accounts executive at a textile exporter in Surat with a monthly CTC of ₹48,000. Employer PF is ₹2,880, statutory bonus provision is ₹1,600, and overtime adds ₹3,200. All three go into the “total remuneration” bucket. Basic plus DA must equal at least half of that total. Businesses running a 35-40% basic before November 2025 need to revisit those numbers. The denominator is wider than many HR teams assumed.
For a full breakdown of how CTC splits into gross and net, see our CTC vs gross vs net salary guide.
Who Qualifies for Overtime Under the New Interpretation?
This ruling caught most employers off guard. Before the Codes, overtime was a factory-floor concept. The March FAQ says any employee whose minimum wage is fixed under the Wages Code qualifies for overtime. Supervisory staff, administrative roles, managerial employees. All of them, as long as their minimum wage has been prescribed.
The trigger: work beyond 8 hours in a day or 48 hours in a week. The rate: twice the normal hourly wage.
Take a hotel in Jaipur with 60 staff, for example. Before November 2025, the housekeeping team tracked overtime but the front-desk supervisor and the F&B manager did not. Under the new reading, if those supervisors work a 10-hour shift during peak wedding season in February, the extra two hours attract double-rate pay.
Across 30,000+ Attendo (formerly Petpooja Payroll) clients, we started seeing overtime configuration requests from office-based businesses (CA firms, diagnostic labs, co-working spaces) within weeks of this FAQ dropping.
What Changed for Gratuity With Fixed-Term Employees?
Two things changed, and the second one is the one that trips people up.
First: fixed-term (contract) employees now qualify for gratuity after completing just one year of continuous service under their contract. Permanent employees still need five years. This is not new to the Code itself, but the March FAQ confirmed that this applies from 21 November 2025 onwards.
Second: the gratuity amount calculates on the last-drawn wage at exit using the new definition. Even if the employee joined years before November 2025 under the old Gratuity Act, the final settlement uses the revised wage definition. This is the part that catches payroll teams off guard.
For example, a contract electrician at a manufacturing unit in Manesar who joined in April 2024 and completed 12 months by April 2025 qualifies from that point. The payout uses the Code’s wage definition (basic plus DA at 50% minimum), not the older formula.
Construction firms, event management companies, and logistics operations that rely on fixed-term contracts should audit their gratuity provisioning. A Hyderabad-based fit-out company with 40 contract workers on 18-month cycles, for example, now carries a gratuity liability for every one of them after month 12. The full and final settlement glossary entry explains how gratuity fits into exit payouts.
Does the ESI Threshold Change?
No. The March FAQ confirmed that the existing ESI wage ceiling of ₹21,000 per month continues to apply until new rules under the Social Security Code are notified. The employee contribution stays at 0.75% and the employer contribution stays at 3.25% of gross wages.
One nuance: the “gross wages” used for ESI eligibility now follow the revised wage definition from 21 November 2025. The ₹21,000 number did not change, but the composition of what makes up that ₹21,000 shifted. Allowances that previously sat outside the wage definition may now count inside it, pushing some borderline staff above or below the cutoff.
If a chunk of your workforce earns between ₹18,000 and ₹23,000 (common in retail, QSRs, and warehouse operations), re-run the ESI eligibility check under the revised definition. Our ESIC registration guide walks through the contribution mechanics.
Are Annual Bonuses and Incentives Counted as Wages?
No. The March FAQ explicitly states that performance-based annual incentives do not constitute “wages” under the Labour Codes. This aligns with how the old Payment of Wages Act treated such payments.
The practical relief: annual bonuses, quarterly incentives, and commission payouts do not inflate the 50% wage floor denominator. If a sales manager at an electronics chain in Lajpat Nagar earns ₹6,00,000 CTC plus ₹1,20,000 as an annual performance bonus, the 50% rule applies to ₹6,00,000 only. The ₹1,20,000 stays outside.
This matters for industries where variable pay is a large share of total compensation: insurance, pharma field sales, real estate brokerage, and restaurant chains with manager-level incentives.
What Did the FAQ Say About Leave Rules?
Two clarifications on leave, both under the OSH&WC Code:
Workers can carry forward up to 30 days of earned leave to the next year. If an employer refuses a leave request and the worker does not take that leave, the refused days carry forward without limit. On separation (resignation, termination, retirement), all accumulated leave must be encashed with no prescribed ceiling.
There is a carve-out: supervisory employees earning above ₹18,000 per month are excluded from these OSH&WC Code leave provisions. Their leave entitlements fall back to the terms of their employment contract or the company’s leave policy, not the statutory minimum.
For businesses with a mix of floor-level and supervisory staff (for example, a supermarket chain in Nagpur with billing clerks at ₹16,000 and department heads at ₹28,000), the payroll system needs separate leave rules per salary bracket. The labour law compliance checklist covers how to set this up.
What Should Employers Do Right Now?
The March FAQ clarified existing law, not new law. If your payroll is not aligned yet, here is the priority list:
- Re-check salary structures against the 50% wage floor, using the expanded total remuneration denominator (including OT, employer PF, statutory bonus)
- Enable overtime tracking for all employee categories, not just floor-level workers
- Audit gratuity provisioning for fixed-term staff who have crossed 12 months of service
- Re-run ESI eligibility for employees in the ₹18,000-₹23,000 bracket under the revised wage definition
- Update leave policies to reflect the 30-day carry-forward cap and unlimited encashment on exit
Attendo already accounts for the revised wage definition, the overtime expansion, and the updated gratuity rules in its salary processing engine. If you are configuring these changes for the first time, the employee self-service portal lets staff view their updated salary slips and leave balances without HR fielding individual queries.
Conclusion
The 16 March 2026 MoLE FAQ did not rewrite the four Labour Codes. It filled in blanks that had been causing inconsistent compliance across Indian businesses since November 2025. The 50% wage floor now has a defined denominator. Overtime applies to everyone with a prescribed minimum wage. Fixed-term gratuity triggers at one year. And performance bonuses stay outside the wage definition.
If your payroll processed salaries for December 2025 through February 2026 without these adjustments, the gap is already three to four months old. The sooner you reconcile, the smaller the arrears.
Frequently Asked Questions
The four Labour Codes became enforceable from 21 November 2025 after central rules were notified. BDO India’s compliance alert covers the full timeline. You can download the minimum wages reference chart for the updated wage floors.
It applies to fixed-term employees as defined under the Industrial Relations Code. A fixed-term employee is one hired for a specific duration with written terms that match what a permanent worker in the same role would receive. Casual or daily-wage workers hired without a fixed-term contract do not fall under this provision. The gratuity formula uses 15 days of last-drawn wages for each completed year of service, divided by 26 working days.
Yes, if their minimum wage is prescribed under the Code on Wages. The MoLE FAQ confirmed that the overtime provision under the OSH&WC Code applies to any employee, including supervisory and managerial roles, whose minimum rate of wages has been fixed. The rate is twice the normal hourly wage for work beyond 8 hours per day or 48 hours per week.
The employee PF contribution rate remains at 12% of basic plus DA. What changed is the wage definition: basic plus DA must now be at least 50% of total remuneration, which means the PF base has increased for companies that were running a low basic structure. The employer contribution structure (3.67% EPF + 8.33% EPS capped at ₹15,000 basic) also stays the same.
The official document is titled “Additional FAQs on Labour Codes (As on 16.03.2026)” and is available on the Ministry of Labour and Employment website under the Labour Codes section.
