New Labour Codes: Following the introduction of the new labor codes, numerous employees began to question why their take-home pay was less than it had been previously. This effect was particularly noticeable in the private sector and among higher salary brackets. At first, this alteration might appear to be a setback, but upon closer examination, the rationale behind it and its advantages become evident.
What significant changes have occurred in the salary structure?
The most substantial modification in the salary framework under the new labor codes pertains to the basic salary. The current guideline stipulates that an employee’s basic salary combined with DA must constitute at least 50% of their total CTC (Cost to Company).
Previously, many organizations intentionally maintained a low basic salary while inflating their HRA and special allowances. This strategy was employed to minimize the amounts for PF and gratuity, thereby alleviating the financial load on both the employer and the employee.
If PF has increased, why has the in-hand amount decreased?
As basic salaries rise, the calculations for Provident Fund (PF) and gratuity also see an increase. PF is deducted from both the employee and the employer as a percentage of the basic salary.
This simply indicates that a larger portion of the employee’s salary is being deducted monthly for PF. Consequently, this leads to a reduction in their take-home pay. However, their total CTC remains unchanged. The additional funds being allocated to the PF account from the employee’s earnings under the new regulations are not vanishing entirely. The employer is also contributing an equivalent amount from its share of the PF account.
Moreover, gratuity is also computed based on your basic salary. Therefore, an increase in your basic salary will lead to a higher gratuity in the future. In simple terms, the money deducted today transforms into long-term savings.
Where and when will you reap the benefits?
The most significant advantage of this adjustment will be realized upon retirement. A larger PF balance translates to a more substantial lump sum when retiring or ending employment. Additionally, the interest accrued on PF is also tax-efficient.
New Labour Codes: Following the introduction of the new labor codes, numerous employees began to question why their take-home pay was less than it had been previously. This effect was particularly noticeable in the private sector and among higher salary brackets. At first, this alteration might appear to be a setback, but upon closer examination, the rationale behind it and its advantages become evident.
What significant changes have occurred in the salary structure?
The most substantial modification in the salary framework under the new labor codes pertains to the basic salary. The current guideline stipulates that an employee’s basic salary combined with DA must constitute at least 50% of their total CTC (Cost to Company).
Previously, many organizations intentionally maintained a low basic salary while inflating their HRA and special allowances. This strategy was employed to minimize the amounts for PF and gratuity, thereby alleviating the financial load on both the employer and the employee.
If PF has increased, why has the in-hand amount decreased?
As basic salaries rise, the calculations for Provident Fund (PF) and gratuity also see an increase. PF is deducted from both the employee and the employer as a percentage of the basic salary.
This simply indicates that a larger portion of the employee’s salary is being deducted monthly for PF. Consequently, this leads to a reduction in their take-home pay. However, their total CTC remains unchanged. The additional funds being allocated to the PF account from the employee’s earnings under the new regulations are not vanishing entirely. The employer is also contributing an equivalent amount from its share of the PF account.
Moreover, gratuity is also computed based on your basic salary. Therefore, an increase in your basic salary will lead to a higher gratuity in the future. In simple terms, the money deducted today transforms into long-term savings.
Where and when will you reap the benefits?
The most significant advantage of this adjustment will be realized upon retirement. A larger PF balance translates to a more substantial lump sum when retiring or ending employment. Additionally, the interest accrued on PF is also tax-efficient.
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Sweta Mitra
Working in the media for last 7 years. The journey started in the year 2018. For the past few years, my working experience has been in Bengali media. Currently working at Timesbull.com. Here I write like Business, National, and Utility News. My favorite hobbies are listening to music, traveling, food,...
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