From overtime to leave to PF: How the new labour code could change your pay and life

India’s labour law overhaul, effective April 1, 2026, is set to directly impact how employees earn, save, and take time off. The new framework—driven by the Code on Wages and the Occupational Safety, Health and Working Conditions (OSH&WC) Code— reshapes three critical aspects of employment: overtime pay, leave entitlements, and provident fund contributions. Together, these changes aim to standardise workplace practices, improve transparency, and strengthen financial security for workers across sectors. While some employees may notice a slight dip in take-home pay due to higher statutory contributions, the broader objective is to enhance long-term benefits and ensure fair compensation for time worked. Here’s a detailed breakdown of what the new labour codes mean for employees in 2026.

Overtime

The new labour codes bring a clear and measurable benefit for employees working beyond scheduled hours. Any overtime must now be compensated at twice the regular wage rate, with employers required to maintain accurate records of extra hours worked.

The framework defines a standard 48-hour workweek, while allowing daily working hours to extend up to 12 hours, including breaks, as long as the weekly limit is maintained. Importantly, even short durations of extra work are now recognised—any time between 15 and 30 minutes will be rounded up and treated as 30 minutes of overtime.

State governments will continue to define overtime caps, generally ranging from 125 to 144 hours per quarter. Employers are also required to clear all pending dues, including overtime payments, promptly when an employee leaves a job.
For employees in roles with frequent overtime — especially blue-collar and shift-based jobs — this translates into more predictable and fair compensation.

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Leave benefits

The new labour codes aim to simplify and standardise leave policies across the country. Under the revised framework, employees classified as “workers” will earn one day of leave for every 20 days worked, replacing the fragmented state-level systems that existed earlier.

Leave carry-forward is capped at 30 days, but employees gain added flexibility through leave encashment provisions. Any leave balance beyond 30 days can be converted into cash, and employees may also choose to encash accumulated leave at the end of the year.

The rules also protect employees from losing leave unfairly. If an employer denies a leave request, that leave can be carried forward without any upper limit. While these changes improve clarity and fairness, full benefits will depend on how quickly individual states notify and implement the rules.

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Provident Fund

A key change under the new labour codes is the standardisation of salary structure. Basic pay, dearness allowance (DA), and retaining allowance must now make up at least 50% of total compensation.

This shift increases the base used for calculating provident fund contributions. Both employer and employee contribute 12% of basic pay plus DA to the Employees’ Provident Fund (EPF), which means higher monthly savings toward retirement. However, this may slightly reduce immediate take-home salary.

Gratuity benefits will also improve, as they are linked to last drawn wages. Additionally, fixed-term and contract employees will now become eligible for gratuity after just one year of service, expanding coverage significantly.

Overall, while the changes may impact short-term cash flow, they are designed to strengthen long-term financial security and bring greater consistency to employee benefits.

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