The offer letter still says Basic 40%, HRA 40%, Special Allowance 20%. It was designed so PF stayed on a small basic. After the Code on Wages, the excluded slice is above half of pay, so the excess is pulled back into wages. PF, gratuity and overtime all move. The CTC email to the candidate did not.
The rule, without the statute voice
Under the Code on Wages, wages are mainly basic pay, dearness allowance and retaining allowance. Specified allowances can sit outside that definition. If those excluded allowances exceed 50% of total remuneration, the excess is added back to wages.
That add-back is what changes the next pay run. Companies that kept statutory cost low by stuffing CTC into “special allowance” see a larger base for PF, gratuity and overtime. The Labour Codes overview lists this as one of four shocks. This note is the salary-structure version: how to rebuild the components so the 50% test is a formula, not a March surprise.
Do this before you touch anyone’s CTC
Tag every component
Mark each head as inside wages or excluded. HRA, bonus, overtime and reimbursements are not “miscellaneous”.
Run the 50% test
Excluded allowances ÷ total remuneration. If the result is over half, the excess returns to wages. Do it per person, not on a sample CTC.
Then apply the ceiling
The ₹25,000 EPF ceiling from 17 September 2026 tests coverage. It does not define wages. Definition first, ceiling second.
Then the state
Central Rules were notified on 8 May 2026. Several states have their own overtime caps, deduction limits and wage-slip timing. One national structure, local statutory flags.
What usually breaks in the spreadsheet
- One structure for every location. Minimum wages and overtime caps are not identical. Bihar and Uttarakhand, for example, have their own quarterly overtime limits in the notified wages rules.
- Deductions above half of wages. Where authorised deductions cross 50% of wages, notified wages rules carry the excess into later wage periods, still capped at 50% a month. A loan recovery that “fits” in Excel can be illegal in the register.
- Gratuity and overtime still on old basic. If wages were rebuilt for PF and not for gratuity or OT, the inspector sees three bases for one person.
- Offer letter frozen, payroll moved. The appointment letter states wages. If the letter and the structure disagree, you have two documents and no defence.
A practical rebuild, in order
- Export every active salary structure, including contractors you pay through your rolls.
- Classify components against the Code definition. Write the classification down; do not leave it in someone’s head.
- Compute excluded allowances as a share of total remuneration. List everyone over 50%.
- Decide the new mix (basic, DA, retaining allowance, and what stays excluded) and the effective date. Do not back-solve it inside one month’s bank file.
- Recompute PF eligibility against the ₹25,000 ceiling, gratuity base, and overtime rate on the new wages.
- Reissue or amend the wage clause in the appointment letter, and generate the wage slip from the locked month.
Bonus has its own ceilings, notified with effect from 21 November 2025: eligibility where wages do not exceed ₹21,000 a month, and calculation as if wages were ₹7,000 or the minimum wage, whichever is higher, when actual wages are above ₹7,000. Do not fold bonus into the 50% conversation and call it done.
Where Bynarize fits
Bynarize Payroll keeps components on the employee, not in a private workbook. When HR locks a month, the payslip and the statutory base come from that lock. Document Studio can issue the appointment or revision letter from the same person record, with a number and a registry, so the wage clause is not a Word file on a desktop.
If you are a Founder or HR Head: pick five people - a junior hire, a special-allowance-heavy manager, a mid-month joiner, a person with a salary advance, and one contract worker. If you cannot show the 50% test and the PF ceiling for those five from the HRMS, the structure is not rebuilt yet.
This is a planning guide to the Code on Wages definition and the rules notified by May 2026, including state variations reported through October 2026. It is not a legal opinion. Confirm component exclusions, minimum wages and overtime with qualified counsel for each state you operate in.
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