Preparations are going on to bring the new labour codes in India. Because of this, the biggest question for salaried employees is whether their take-home pay (in-hand salary) will go down.
The four labour codes combine 29 old labour laws. They change many things, from social security to workplace rules. The biggest change for employees is the new definition of wages. Under this, at least 50% of the total salary must be counted as wages for PF, gratuity and other benefits.
This rule will bring more transparency and make future social security payments easy to understand. But it also creates worry for employees. If PF is calculated on a larger part of the salary, the take-home pay may be reduced under the new PF deduction rule.
Will Your Take-Home Salary Decrease?
The new labour reforms may affect your take-home salary. The wider salary definition will increase EPF contributions. This means your in-hand salary may go down if your cost-to-company (CTC) stays the same.
According to Balasubramanian A., Senior Vice President at TeamLease Services, 50% of your CTC will now be used to calculate the 12% EPF deduction. If your CTC does not increase, your PF contribution will rise, and your take-home pay may reduce a little.
Who Will Be Affected and Who Will Not?
No impact on minimum PF contributors:
Right now, EPF is deducted only from basic salary + dearness allowance (DA). Both employee and employer contribute 12% each. Those who are currently paying the minimum PF amount of ₹1,800 per month will not be affected. If you are already paying the minimum, nothing will change.
Impact on higher-paid employees:
Employees with higher salaries may see a change, but they also have an option. They can limit their PF deduction to ₹1,800. You can ask your HR team to cap your PF at this amount. This will stop your take-home pay from going down.
Minimum wage reforms may also increase salaries. A national floor wage (minimum wage) will be fixed under the new codes. After this, all states will revise their minimum wages.
Balasubramanian says most employees in India earn ₹25,000 or less. For them, an increase in minimum wage can raise their salaries, even if PF increases.
Gratuity After One Year
One employee-friendly change is the new gratuity rule. Earlier, you needed five years of service to get gratuity. Now, only one year is enough.
Gratuity equal to 15 days’ salary will be given for every 12 months of work. This is helpful for today’s job-hopping generation and improves long-term financial security.
Rahmi Pradeep, Partner at Cyril Amarchand Mangaldas, says that companies that hire short-term or project-based workers will now have to pay gratuity sooner and more often.
Who Will the New Rules Apply To?
The coverage is wider than before. Most permanent staff, contract workers, gig workers, and platform workers will come under the new labour codes. Only informal or casual workers may be excluded.