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Code of Wages: Lower take-home pay today, for a larger retirement corpus tomorrow

The government's new wage code requires basic pay to be 50 percent of your total salary. Provident fund deductions will, therefore, increase.

February 23, 2021 / 10:43 AM IST

The Parliament has approved the code of wages in 2019, to rationalize 44 central labour laws. As per the new wage code, allowances given to an employee should not exceed 50 per cent of the cost to company (CTC). So, the basic pay has to be 50 per cent or more of the CTC from April 2021.

Under the current dispensation, employers structure wages in such a way the employees get more money as allowances and less as basic wages. This ensures more take home salary and less contribution towards the social security schemes as contribution to the provident fund and gratuity is calculated as a percentage of the basic salary.

Employees to get more PF, gratuity

"From the next financial year, it is mandatory for companies to increase the basic pay (to at least 50 percent of the CTC) of employees, which will ultimately result in a reduction of the take-home pay of employees but increase in PF and gratuity contributions," says Kapil Rana, Founder & Chairman, HostBooks Limited.