Labour code cost estimator · for finance

What do the labour codes add to PF and gratuity?

Four averages are enough for a first answer. It includes the part most balance sheets miss: gratuity already earned, repriced on the new wage base. Nothing you enter leaves this page.

Gratuity already earned, repriced
Employer PF, every year
Gratuity, each further year
Take-home, per employee a month

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How this is worked out

Wages are all remuneration minus a closed list of exclusions (Code on Wages, 2019, s.2(y) proviso, and Code on Social Security, 2020, s.2(88) proviso). Special allowance is not on that list, so it counts as wages.
Where the excluded components come to more than half of remuneration, the excess is added back and treated as wages. This is the 50% test.
Remuneration here is the monthly earnings you entered plus today’s employer PF (12% of the PF base you chose), which the Ministry of Labour’s FAQs on the codes (16 March 2026) count in the test, as they count overtime and statutory bonus; those two are not asked for here. Gratuity, ESI and NPS do not count.
The Ministry’s FAQs read every allowance other than basic, DA and retaining allowance as an item to test; the Code’s own wording makes special allowance wages outright. This check uses the Code’s wording, which is the higher of the two.
Today’s PF and gratuity are assumed to be calculated on basic + DA. PF is 12% from the employer and 12% from the employee; admin and EDLI charges are not included.
Gratuity is the exit liability: 15/26 of a month’s wages for each completed year of service, capped at ₹20 lakh (Payment of Gratuity Act, 1972, s.4(3)). It is not the 4.81% provision some CTCs carry.
Company figures use one average employee. Real structures vary by grade; the Health Check looks at them one by one.
Accrued gratuity is before any actuarial discount or attrition, and gratuity is generally paid only after five years of service.

Questions finance asks

Why does gratuity for past years go up?

Gratuity is paid on the wages an employee last drew, multiplied by the years they served. If the codes raise the wages it is calculated on, every year already served is paid at the higher figure, not just the years to come.

Is this what our actuary will book?

No. It is the undiscounted obligation for the average employee, before attrition, and gratuity is generally paid only after five years of service. It shows the size and direction of the change so you know what to ask your actuary.

Our grades are all different. Is an average good enough?

For a first look, yes. For a real answer, check your grades one by one in the Payroll Health Check.

Book a 10-minute Health Check

Bring three salary grades, anonymised. We will read them against the codes with you and show where the exposure sits.

Questions finance asks

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