New Labor Laws: The Indian government has introduced four new codes to update the labor laws that have been in place for 29 years. A notification about these new labor codes was released on November 21, 2025, which means companies will need to make significant adjustments to their salary structures. The new labor codes focus more on social security, but this could also negatively impact employees: their take-home or in-hand salary might decrease.
Actually, under the new labor code, an employee’s basic salary has to be at least 50% of their CTC. Previously, companies could reduce their employees’ basic pay while boosting their allowances, like HRA, DA, etc. This practice lowered their PF and gratuity contributions, leading to a higher take-home pay. Now, let’s break down the changes in the new labor code and see how much their take-home pay will be affected.
Why were new labor codes introduced?
The goal of implementing the new labor code is to enhance the social security of employees. By raising the basic salary to 50% of CTC, the aim is to boost employees’ contributions to pension funds and gratuity, ensuring a solid fund for retirement. While this offers long-term advantages, it might increase their current financial strain.
Understand the complete calculation in this way
Let’s say an employee’s CTC is Rs 50,000. Their basic salary falls between Rs 15,000 and Rs 20,000. A 12% PF contribution is deducted from this, which amounts to between Rs 1,800 and Rs 2,400. Now, with the new labor code in effect, companies will need to pay their employees 50% of their CTC as basic salary. For a CTC of Rs 50,000, that means Rs 25,000.
The PF contribution will rise to Rs 3,000, which is an increase of Rs 1,200 to Rs 600. This will boost retirement savings, but it also means Rs 1,200 more will be taken from their take-home salary. Likewise, gratuity will also be deducted from their take-home pay.
