EPF Deduction New Rule: How much will the PF deduction be, how much will the new rule affect the in-hand salary?

Preparations are underway to implement new labor codes in India. Meanwhile, the biggest question on the minds of salaried employees across the country is whether their take-home pay (in-hand salary) will decrease.

The four labor codes consolidate a total of 29 labor laws and change everything from social security to workplace regulations. The most significant change for employees is the new definition of wages, which will require at least 50 percent of total remuneration to be used for calculating provident fund (PF), gratuity, and other benefits.

This move will bring transparency and make future social security amounts predictable, but it also raises a significant concern that take-home pay may decrease if PF deductions now apply to a larger portion of the salary (New PF Deduction Rule).

Will your take-home pay decrease?
The new labor reforms may impact take-home pay. The expansion in the definition of salary will increase EPF contributions, which could reduce the salary deposited into bank accounts if the cost to the company (CTC) remains the same.

According to Balasubramanian A., Senior Vice President, TeamLease Services, 50 percent of CTC will now be the basis for a 12 percent EPF deduction. If your CTC does not increase, your EPF contribution will increase, and your take-home salary may decrease slightly.

Which employee's salary will not be affected?
Currently, EPF is deducted only on basic salary + dearness allowance (DA). Both the employee and the employer contribute 12 percent each. Those currently receiving the minimum EPF deduction (₹1,800 per month) will not see any impact. Balasubramanian says that if you are currently paying only the minimum EPF, there will be no change.

Which employee's salary will be affected?
Higher-paid employees may be affected, but they have options. They can cap their EPF at ₹1,800. You can also ask your HR to cap your PF at ₹1,800. This way, a drop in take-home pay can be avoided. Minimum wage reforms can also increase salaries. A national floor wage (national minimum wage) is also being introduced in the labor codes. Following this, all states will revise their minimum wages.

Balasubramanian explains, "Nearly 90% of India's employees earn ₹25,000 or less. They are the most vulnerable. If the minimum wage is increased, the salaries of this segment may actually increase." This means that while some people's PF may increase, the vast majority will benefit from the mandatory salary increase.

Gratuity will be available within one year. One of the most employee-friendly changes is the gratuity rule. Previously, 5 years of continuous service was required; now, gratuity will be eligible within just one year.

This is very practical for today's job-hopping generation. Gratuity equivalent to 15 days' salary will be awarded after 12 months of work. This will significantly strengthen the long-term financial security of young employees.

Rahmi Pradeep, Partner (South Region Head), Cyril Amarchand Mangaldas, says, "Organizations that rely on short-term contract or project-based staff will have to pay gratuity earlier and more frequently."

Who will the new rules apply to?
The coverage is broader than ever before. Balasubramanian says that almost all permanent employees, contract workers, platform workers, and gig workers, except informal or casual workers, will be covered by the new labor codes.

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