Statutory Background
With the full implementation of the New Labour Codes (Code on Wages, Code on Social Security, and Industrial Relations Code) in 2026, salary restructuring is no longer just a tax optimization exercise—it is a compliance necessity. Employers must ensure that wage definitions, statutory filings, and employee communication align with the updated legal framework.
Key Provisions
1. The 50% Wage Rule (Code on Wages, Section 2(88))
- “Wages” must constitute at least 50% of total remuneration.
- Excess allowances beyond 50% must be subsumed into wages for PF, gratuity, and bonus calculations.
- Employers with structures showing disproportionately low Basic Pay must restructure to comply.
2. Section 9A Notice (Industrial Relations Code, 2020)
- Applies to workmen (non-supervisory staff).
- Any change in wages or service conditions requires a Notice of Change.
- Timeline: 21 days’ prior notice before implementation.
- Form: Form E must be served to employees and filed with the Labour Department.
- Practical Compliance:
- Display notice on workplace boards and circulate digitally.
- File copy with jurisdictional Labour Office.
- Consolidate changes into annual/semi-annual cycles to avoid repeated filings.
- For managerial staff, obtain contractual consent (addendum/e-acceptance). Digital acceptance is valid under the Information Technology Act, 2000.
3. EPFO Filings (Social Security Code)
- ECR (Electronic Challan-cum-Return): Monthly filings must reflect revised PF wages.
- Form 5A: Update establishment particulars if authorized signatories change.
- Supplementary ECR: Required for retrospective restructuring to pay arrears.
4. ESIC Filings
- Employees earning above ₹21,000/month are excluded from ESIC coverage.
- Update member records on the ESIC portal to avoid compliance flags.
5. Income Tax (TDS)
- Form 24Q: Quarterly returns must reflect revised salary components.
- Ensures accurate Form 16 issuance and employee tax credits.
6. Professional Tax (PT)
- PT is slab-based and varies by state.
- Salary restructuring may push employees into higher PT brackets.
- Adjust monthly/quarterly PT returns accordingly.
7. Labour Welfare Fund (LWF)
- State-specific contributions must be recalculated if restructuring alters wage components.
- Ensure compliance with respective state cycles.
Compliance Checklist
| Action Item | Statute/Act | Timeline |
| Notice of Change (Form E) | Industrial Relations Code | 21 Days Prior |
| Employment Addendum (Digital Acceptance) | Indian Contract Act & IT Act, 2000 | Before Effective Date |
| Updated ECR Filing | Social Security Code | 15th of following month |
| ESIC Member Record Update | ESIC Regulations | Immediate upon salary change |
| TDS Return (Form 24Q) | Income Tax Act | Quarterly |
| PT Return Update | State PT Acts | Monthly/Quarterly |
| LWF Adjustments | State LWF Acts | Per State Cycle |
Final Position
Salary restructuring in 2026 is a compliance-sensitive exercise. Employers must:
- Align wage structures with the 50% rule.
- Issue Section 9A notices for workmen when altering wages.
- Update PF, ESIC, TDS, PT, and LWF filings promptly.
- Secure contractual consent for managerial staff, preferably through digital acceptance.
Transparent communication with employees, coupled with statutory compliance, ensures both legal safety and workplace trust.
Disclaimer
This advisory is intended for general compliance guidance. It does not constitute legal opinion or substitute for professional consultation. For case-specific advice, please contact your legal advisor.