Salary structure and the statutory wage rule
Enter a salary structure and this tool shows how it is treated under the definition of wages in Section 2(88), Code on Social Security, 2020 — and the equivalent definition in section 2(y) of the Code on Wages, 2019, whether the one-half proviso applies to it, and what that means for PF, ESI and gratuity.
Worth knowing first:the rule is not “basic pay must be 50% of CTC”. It operates on the excluded components — where those exceed one-half of total remuneration, only the excess is added back into wages. This tool applies that mechanism, not the shorthand.
This is an information tool, not advice. It performs arithmetic on figures you enter. It does not decide whether a salary structure is lawful, compliant or correct, it is not a substitute for professional advice, and GHR assumes no duty of care to you in respect of it. Position stated as at 2026-09-25.
What is the annual CTC?
The total annual cost to the company for this employee, as you have quoted it.
About ₹50,000 a month in total cost.
What does that CTC already include?
This changes the answer, so it is worth getting right. If the employer contribution is inside the quoted CTC, it comes out of the salary; if not, it is charged on top.
Monthly structure
12 months · ₹6,00,000 a year
Monthly gross
₹47,170
what the employee is paid
Total monthly cost
₹50,000
gross plus employer contributions
Wages for statutory purposes
₹23,585
drives PF, ESI and gratuity
Paid to the employee
Employer contributions
Annual cost ₹6,00,000.00 against the ₹6,00,000 you entered — it ties back exactly.
The half-of-remuneration floor
This structure puts basic pay at exactly one-half of gross, which is the lowest statutory wage figure the provision allows. That is not a convention \u2014 it is a property of the first proviso, and it has two consequences that are easy to miss.
The figure can never go below half
Where the excluded allowances exceed one-half of remuneration, the amount added back is the excess. Working that through, the wage figure settles at exactly one-half of total remuneration whatever the split. No arrangement of heads gets below it.
So restructuring often saves nothing
If excluded allowances already exceed one-half, moving money between basic pay and allowances does not change PF, ESI or gratuity by a single rupee \u2014 the figure is pinned at half either way. Restructuring only reduces the figure where basic pay is high enough that excluded allowances sit below one-half.
Before any of this is used
- Minimum wages. Basic pay plus dearness allowance must still meet the applicable Kerala minimum wage for the category of employment. On a low CTC this structure will not clear it. Check it against the minimum wage before anything else. Minimum wages calculator
- Consent and contract.Changing the split between basic pay and allowances generally alters the terms of employment. It may need the employee’s consent and a revised contract. Nothing here authorises or approves any change.
- The excluded heads must genuinely apply. Conveyance, house rent and special allowances are excluded only where they are genuinely paid on that footing. Re-labelling ordinary salary as an excluded allowance does not move it out of wages.
- ESI coverage assessed on wages. Coverage is tested against the statutory wage figure, not gross, so an employee can be within the ESI ceiling on a gross well above ₹42,000. Confirm the position for each employee.
Doing this across a payroll
The arithmetic is the easy part. The work is in checking each employee against minimum wages, confirming what the CTC is understood to include, handling consent, and issuing revised contracts. GHR does that review for your establishment.
Before you change anything
Altering the split between basic pay and allowances generally changes the terms of employment. It may need the employee’s consent, a revised contract, and consideration of how the change is communicated. GHR reviews the position for your establishment, including your contracts and any settlement that applies, and advises on the process.
Important — please read before relying on this
This calculator is a self-help information tool. It is not legal, tax, accounting, payroll or other professional advice, and it is not an opinion of any kind. GHR Consultancy is not acting for you, and no adviser, client, fiduciary or other professional relationship is created by using it.
The tool and everything it produces are provided as is and as available, without any representation, warranty or guarantee of any kind, express or implied, including as to accuracy, completeness, correctness, reliability, fitness for a particular purpose or freedom from error. GHR does not represent that the statutory position stated is current, complete, or applicable to your establishment.
The output is not a compliance certificate, clearance, approval, verification, audit or determination of any kind. It must not be relied upon and must not be used as a substitute for advice from a qualified professional. GHR assumes no duty of care to you or to any other person in respect of it. Any reliance you place on it is entirely at your own risk.
The statutory basis is Section 2(88), Code on Social Security, 2020 — and the equivalent definition in section 2(y) of the Code on Wages, 2019. It carries out arithmetic on the figures you enter, applying the definition of wages referred to above and its first proviso. It does not:
- determine whether any salary structure is lawful, compliant, correct, safe or advisable;
- take account of your contracts of employment, standing orders, any award, settlement, collective agreement, industry practice or applicable State rules;
- consider income tax or any other tax consequence, which is governed by different law and is outside its scope;
- verify the figures you enter, or the way you have classified each component; or
- constitute a recommendation, endorsement or approval of any course of action.
How each component has been classified is set out below. Those classifications are assumptions, not findings. GHR has not checked your figures or your classification. If a component is entered under the wrong head, every figure the tool produces will be wrong.
Changing an employee’s remuneration. — including the split between basic pay and allowances — generally alters the terms of employment. It may require the employee’s consent, a revised contract or a statutory notice, and may engage obligations under the Code on Wages, 2019, the Industrial Relations Code, 2020 and applicable State rules. Nothing here authorises, approves, recommends or advises any such change. Take professional advice on whether and how the change may be made before making it.
The legal position is stated as at 2026-09-25. The definition of wages and the one-half proviso may be amended, supplemented or superseded at any time, and the threshold itself is expressed in the statute as one-half "or such other per cent. as may be notified". GHR does not undertake to update this tool, and you should not assume it reflects the law at any later date.
To the fullest extent permitted by law, GHR Consultancy and its partners, employees and agents exclude all liability for any loss, damage, cost or expense of any kind — including indirect or consequential loss, loss of profit, and any regulatory, statutory or contractual consequence — arising out of or in connection with the use of, or reliance on, this tool or anything it produces, whether in contract, tort (including negligence), statute or otherwise.
If you need a determination for your establishment, that is a separate professional engagement and the only basis on which GHR can advise you. Obtain professional advice before acting on anything shown here.
These terms are governed by the laws of India, and the courts at Kerala have exclusive jurisdiction.
Frequently asked questions
Can I work out the monthly breakup from a CTC figure?
Yes — that is what the 'Start from a CTC' mode does. Enter the annual cost to company, say whether employer PF, ESI, gratuity and bonus are already inside that figure, and it produces the monthly breakup together with the employer contributions, and checks that the whole thing adds back to the CTC you entered. The mode exists because most employers do not start with a component breakup. They start with a figure already promised to an employee.
Is it true that restructuring cannot reduce PF below a certain point?
Yes, and this is the most important thing on this page. Working the first proviso through, the statutory wage figure always equals the higher of basic pay and one-half of total remuneration. So two things follow. First, the figure can never fall below half of remuneration, whatever you do with the heads. Second, if your excluded allowances already exceed one-half, moving money between basic pay and allowances changes PF, ESI and gratuity by nothing at all — the figure is pinned at half either way. Restructuring only reduces the figure where basic pay is high enough that excluded allowances sit below one-half, and then only down to half. Anyone offering a restructuring that promises savings beyond that is not describing this provision.
Does basic pay have to be 50% of CTC?
No — that is a common shorthand, but it is not what the statute says. The definition of wages in Section 2(88), Code on Social Security, 2020 — and the equivalent definition in section 2(y) of the Code on Wages, 2019 includes basic pay, dearness allowance and retaining allowance, and excludes eleven listed heads. Its first proviso then provides that where the excluded payments exceed one-half of all remuneration, only the EXCESS is added back into wages. The threshold therefore operates on the excluded side, not on basic pay. A structure with basic well below 50% can still be within the rule; one with basic at 50% can still be caught.
What happens if the excluded allowances exceed half of remuneration?
The amount by which they exceed half is deemed to be remuneration and is added back into wages. Only the excess is added back — not the whole of the excluded amount. That higher wage figure then drives provident fund, ESI, gratuity, maternity benefit and compensation together, because the Code consolidated five separate wage definitions into one.
Does this calculator tell me whether my structure is compliant?
No, and it deliberately does not try to. It performs arithmetic on the figures you enter and shows how the statutory definition treats them. Whether a particular structure is lawful depends on matters outside this tool — your contracts of employment, any award or settlement, industry practice and applicable state rules. That assessment requires professional advice.
Do I need employee consent to restructure?
Changing the split between basic pay and allowances generally alters the terms of employment, and usually requires the employee's consent together with a revised contract. The process matters as much as the arithmetic, and this tool does not address it. Take advice before making any change.
Which employees does this affect?
The definition applies to wages payable under the terms of employment, so it is not limited to new joiners. Existing structures are equally affected. Where a structure has been in place for some time and the position has changed, the question of how to move to a different structure — and from when — is one for professional advice.
Is gratuity now calculated on this new wage figure?
Yes. Section 53(2) of the Code on Social Security, 2020 pays gratuity at fifteen days' wages per completed year on the rate of wages last drawn, and section 54 — which defines terms for the gratuity chapter — defines only continuous service, not wages. The general definition in section 2(88) therefore applies, so gratuity runs on the consolidated wage figure including any one-half proviso add-back, and not on basic pay plus dearness allowance as it did under the repealed Payment of Gratuity Act, 1972. The Ministry of Labour's own FAQ of 16 March 2026 confirms the revised definition applies to gratuity from 21 November 2025. Three practical points follow: gratuity is computed on wages last drawn, there is no pro-rating of service before 21 November 2025, and payments that are not among the section 2(88) components — annual incentives, ESOPs, variable pay — are not included in the base. The ceiling remains Rs 20 lakh.
Have the Kerala State Rules under the Codes been notified?
Not on the evidence available to us. The Codes themselves have applied in Kerala since 21 November 2025, including the definition of wages and the gratuity provisions. But Kerala had not notified its own rules under them, and as at mid-2026 the State was still preparing draft rules and consulting trade unions. That distinction matters. For establishments where the State is the appropriate government — most private-sector shops, commercial establishments, factories and plantations in Kerala — the Central Rules 2026 do not apply directly, and the older Kerala rules continue alongside the Codes so far as they are not inconsistent with them. If you are told that the Central Rules govern your Kerala establishment's procedures, check that against your own position.
Part of our wages are paid in kind. How is that treated?
The Explanation to section 2(88) provides that where an employee is given remuneration in kind in lieu of the whole or part of the wages payable, the value of that remuneration in kind is deemed to form part of wages only so far as it does not exceed fifteen per cent of the total wages payable. Value above that cap falls outside the deeming provision. The Code does not state whether the fifteen per cent is measured before or after adding the in-kind value; this calculator measures it against the cash components.
Is this the same wage figure used for equal wages and for payment of wages?
No, and this catches people out. The second proviso to section 2(88) provides that for the purpose of equal wages to all genders, and for the purpose of payment of wages, the emoluments in sub-clauses (d), (f), (g) and (h) — conveyance allowance, house rent allowance, remuneration under an award or settlement, and overtime allowance — are taken into the computation of wage, notwithstanding that they are otherwise excluded. That is a different figure from the general one this calculator shows, and it should be computed separately for those two purposes.