New Labour Codes: Government Clarifies Impact on Take-Home Salary, PF and Wage Structure

New Labour Codes: Government Explains How Take-Home Salary, PF Deduction and Wage Structure Will Change

The central government has issued a detailed clarification on how India’s new Labour Codes will impact employees’ take-home salary, PF contribution, and overall wage structure. With questions rising about whether the new rules will reduce monthly in-hand pay, the Ministry of Labour has now confirmed that mandatory PF deductions will not increase for most employees.

According to the Ministry, workers whose PF contributions are currently calculated on the statutory wage ceiling of ₹15,000 per month will continue to contribute the same amount even after the new codes are implemented. That means employees paying ₹1,800 PF (12% of ₹15,000) will pay the exact same amount in the future. The rules governing labour benefits may have changed, but the compulsory PF limit remains unchanged.

PF Deductions to Stay the Same

In a post on X (formerly Twitter), the Ministry clarified that the new Labour Codes do not reduce take-home salary for employees whose PF is calculated on the ₹15,000 wage ceiling. Contributions above that limit are voluntary, not mandatory.

This means that even if an employee’s revised basic salary increases due to changes in the wage structure, the statutory PF deduction will still be restricted to ₹15,000 of wages, unless the employee chooses to contribute more.

Employees with a basic salary higher than ₹15,000 per month will not be forced to contribute additional PF. They can continue with the same ₹1,800 monthly PF deduction, just like before.

How the New Wage Definition Affects PF Calculation

The Ministry used an example to explain how the revised wage structure affects PF calculations—but also why PF contributions remain unchanged.

Example:
A worker earns a total salary of ₹60,000 per month.

• Current Basic + DA: ₹20,000

• Allowances: ₹40,000

Under the new Labour Codes, allowances cannot exceed 50% of total CTC. In this case, allowances form two-thirds of the salary. Therefore, ₹10,000 must be added to the wage component, increasing PF-eligible wages from ₹20,000 to ₹30,000.

However, despite this adjustment, PF will still be calculated on the statutory wage cap of ₹15,000, meaning:

• Employee PF = ₹1,800

• Employer PF = ₹1,800

Thus, the employee’s take-home salary remains unchanged, provided they stick to the statutory PF ceiling.

Why Take-Home Salary May Still Change for Some Employees

Although PF deductions will not rise mandatorily, the new wage structure could still impact take-home salary in other ways.

Under the new rules:

• At least 50% of total CTC must be counted as ‘wages’, which include Basic Pay, DA, and Retaining Allowance.

• This raises the fixed salary component for employees whose pay structure currently includes high allowances or flexible pay.

This may lead to:

• Higher gratuity contributions, since gratuity is calculated on basic salary.

• Changes in leave encashment calculations.

• Possible increases in PF, NPS, or gratuity contributions if employees choose to contribute beyond the statutory limit.

Experts say the biggest impact will likely be seen in gratuity payouts, as an increased fixed wage automatically raises gratuity calculations.

New Labour Codes: What It Means for Companies

Industry experts observe that the new Labour Codes aim to standardise wage structures across organisations. With the requirement of keeping at least half of CTC under the “wages” definition, companies may need to redesign salary structures, especially for employees whose compensation includes large allowance components.

Key implications for companies:

• Salary structures must align with the 50% wage rule.

• Fixed pay components may rise across job categories.

• Social security contributions—PF, NPS, and gratuity—may naturally increase.

The government says these reforms are designed to strengthen social security, ensuring employees receive better long-term benefits, even if salary structures become less flexible.