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A question that keeps coming up in my conversations with HR teams: We’ve restructured salaries to comply with the 50% wage rule. But what happens when an employee takes unpaid leave and their monthly payout drops? How do the new EPF, EPS and EDLI Schemes notified on June 29, 2026 affect this?
The short answer is that the new schemes don’t change the fundamental math but they do add some important clarifications that every employer needs to understand. Let me walk you through exactly how this works under the new framework.
What Actually Changed on June 29, 2026
On June 29, 2026, the Ministry of Labour and Employment notified three new schemes under the Code on Social Security, 2020:
- Employees’ Provident Funds Scheme, 2026 (replacing the EPF Scheme, 1952)
- Employees’ Pension Scheme, 2026 (replacing EPS-95)
- Employees’ Deposit Linked Insurance Scheme, 2026 (replacing EDLI Scheme, 1976)
These schemes came into effect on the date of publication in the Gazette. The reforms are largely administrative and structural rather than financial. The core financial fundamentals remain unchanged:
| Component | Position Under New Schemes (2026) |
| EPF contribution rate | 12% each from employer and employee (10% for notified establishments) |
| Statutory wage ceiling | ₹15,000 per month (unchanged) |
| Mandatory EPF contribution | Capped at ₹1,800 per month (12% of ₹15,000) |
| Employer EPS contribution | 8.33% of wages, subject to the wage ceiling of ₹15,000. Contributions above the ceiling are not mandatory |
| Minimum monthly pension | ₹1,000 (unchanged) |
| EDLI employer contribution | 0.5% of wages, capped at ₹75 per employee per month (unchanged under EDLI 2026) |
The key clarification in the new EPF Scheme is that contributions on wages above the ₹15,000 monthly wage ceiling are now explicitly voluntary for both employers and employees. The scheme states that “the contribution payable in respect of a member shall be subject to the wage ceiling limit, notified by the Central Government from time to time”. Where monthly wages exceed the ceiling, contributions shall be limited to the contribution payable on the wage ceiling.
The 50% Rule: What It Actually Means
Before we get to the loss of pay scenario, let’s clear up what the 50% rule actually says because there’s a lot of confusion floating around.
Under the uniform definition of wages introduced by the labour codes, “wages” include basic pay, dearness allowance, and retaining allowance. Certain components are excluded viz. HRA, bonuses, employer PF contributions, conveyance allowance, commissions, overtime, and reimbursements.
Here’s the key provision: if these excluded components exceed 50% of the total remuneration, the excess amount must be added back to wages for statutory calculation purposes. This is a deeming provision. It doesn’t mandate that basic salary must be exactly 50% of gross. What it does is cap exclusions at 50%. If your exclusions stay under 50%, you’re compliant regardless of what percentage your basic pay represents.
The Loss of Pay Scenario Under the New Schemes
Now to the core question. When an employee takes unpaid leave, the total remuneration for that month decreases. The 50% test applies to whatever the total remuneration is for that specific pay period.
Let me illustrate with an example under the new EPF Scheme, 2026.
Normal month:
- Total remuneration: ₹50,000
- Basic + DA: ₹26,000 (52%)
- Excluded components: ₹24,000 (48%)
- Result: Exclusions under 50% → Compliant
- EPF: 12% on actual wages (or on ₹15,000 ceiling if employer opts to cap)
Loss of pay month (5 days unpaid, 10% salary reduction):
- Total remuneration: ₹45,000
- Basic + DA: ₹26,000 (57.8%)
- Excluded components: ₹19,000 (42.2%)
- Result: Exclusions still under 50% → Compliant
- EPF: Same calculation applies to the reduced wage base
The rule operates on a periodic basis. Each month stands on its own for the 50% calculation. A temporary reduction in total remuneration due to unpaid leave doesn’t retroactively invalidate your salary structure.
What happens if the loss of pay is so severe that excluded components cross the 50% threshold? Suppose the same employee takes 15 days of unpaid leave, reducing total remuneration to ₹25,000 while excluded components remain at ₹19,000 (now 76% of total). In this case, the excess over 50% (₹6,500) would be deemed as wages for statutory purposes. Your EPF, EPS, and EDLI calculations for that month would use ₹25,000 + ₹6,500 = ₹31,500 as the wage base; subject, of course, to the ₹15,000 statutory ceiling for mandatory contributions unless you’ve opted for voluntary contributions on higher wages.
Where the New Schemes Change the Picture
The new schemes introduce three important considerations for loss of pay months:
1. Voluntary contributions above the ceiling are now explicit
Under the new EPF Scheme, contributions on wages above ₹15,000 are voluntary. If your company has a policy of contributing on actual wages rather than capping at ₹15,000, that policy needs to be explicitly documented in your compensation policy or employment contract. During loss of pay months, if the deemed wage base falls below ₹15,000, mandatory contributions apply on the actual reduced amount and not on the ceiling.
2. EDLI contributions follow the same wage definition
The EDLI Scheme, 2026 calculates employer contributions on “wages as defined in clause (88) of section 2 of the Code, subject to the wage ceiling specified in clause (89) of section 2 of the Code”. The rate remains 0.5% of wages, capped at ₹75 per employee per month. The 50% deeming provision applies to EDLI calculations just as it does to EPF and EPS.
3. The 48-hour exit rule interacts with loss of pay months
Under the new framework, full and final wage settlements must be completed within two working days of resignation, dismissal, or retrenchment. When calculating final settlements for employees who had loss of pay months during their tenure, the 50% rule applies to each month’s actual remuneration. For gratuity and other exit payouts, the wage base used is the one determined through the 50% deeming mechanism and not the headline salary figure. ICAI has clarified that gratuity must now be calculated on last drawn wages, which should be minimum 50% of total remuneration. For gratuity, “last drawn wages” means the wage base determined through the deeming provision, which may be higher than contractual basic pay in loss of pay months.
Practical Takeaways for Your Payroll Team
1. Don’t over-engineer the solution. Loss of pay months don’t require salary restructuring. The deeming provision handles the math automatically. The new EPF Scheme doesn’t change this fundamental principle.
2. Review your payroll system. Ensure your payroll software can handle the periodic 50% test correctly, especially for months with variable pay components. This is particularly important now that the new schemes have clarified the voluntary nature of contributions above the ₹15,000 ceiling.
3. Document your contribution policy. With the new schemes making it explicit that contributions above the wage ceiling are voluntary, ensure your employment contracts and compensation policies clearly state whether you contribute on actual wages or cap at ₹15,000.
4. Communicate with employees. Employees may notice variations in PF deductions in months where the deeming provision is triggered or where loss of pay reduces their wage base below the ₹15,000 ceiling. A brief explanation prevents confusion.
5. Audit your structures. If you’re relying on the deeming provision frequently due to loss of pay, your base structure may be too close to the 50% line. Consider strengthening your basic+DA base to create a buffer.
6. Monitor for wage ceiling changes. Policy discussions are ongoing regarding a possible increase of the EPFO wage ceiling to ₹25,000. However, as of July 2026, this proposal has been put on hold to avoid additional financial burden on businesses already adapting to the new labour codes. Employers should monitor official notifications before restructuring.
The Bottom Line
Employers must ensure payroll systems apply the deeming provision correctly each month, while documenting contribution policies to align with the new schemes. The 50% wage rule applies to each pay period’s actual remuneration. Loss of pay reduces total remuneration and may change the percentage composition, but it doesn’t require proactive restructuring. The deeming provision automatically adjusts the wage base for statutory calculations when exclusions exceed 50%.
The new EPF, EPS, and EDLI Schemes notified on June 29, 2026 don’t change this fundamental mechanic. They do, however, clarify that contributions above the ₹15,000 wage ceiling are voluntary and must be explicitly documented. For employers, this means the real compliance work lies in getting your base salary structure right and documenting your contribution policies clearly and not in micromanaging every loss of pay month.
Disclaimer: This content is for educational and informational purposes only. It is based on available Central notifications and rules as of July 2026, including the Employees’ Provident Funds Scheme, 2026, Employees’ Pension Scheme, 2026, and Employees’ Deposit Linked Insurance Scheme, 2026 notified on June 29, 2026. Labour is a Concurrent Subject under the Indian Constitution, and State-specific rules may impose additional or different requirements. This does not constitute formal legal counsel. Employers should consult qualified legal professionals for advice specific to their circumstances.