Will your take-home salary fall under new labour codes? Here’s how it can impact your PF deduction

Labour laws: Will your take home salary go down?

As India Inc prepares to implement the new labour codes, one concern is on top of the mind for India’s salaried workforce - Will their take-home salary go down? The possibility can be real for many employees even as the much-awaited reform aims to simplify and standardise the labour framework.

The four labour codes consolidate as many as 29 labour laws, and overhaul everything from social security to workplace norms, with the most-consequential change for employees being the expanded definition of 'wages', which mandates that 50 percent of total remuneration must form the basis for Provident Fund, Gratuity, and other benefits.

While the move brings transparency and ensures predictable social security payouts, it also raises a pressing concern: if PF is calculated on a larger portion of the salary, the take-home component may shrink.

Will your take-home salary go down?

The new labour reforms can impact your take home salary as when the wage definition expands, EPF contributions rise, which can eat into take-home pay if your CTC stays constant.

“Now, 50 percent of the CTC will be considered for calculating the 12 percent EPF deduction from an employee’s salary,” said Balasubramanian A, Senior Vice President, TeamLease Services. “If your CTC doesn’t change, your EPF contribution will increase, and your take-home pay may dip slightly.”

Currently, Employees' Provident Fund (EPF) deduction is based on basic salary plus dearness allowance. Both the employee and the employer contribute 12 percent of this amount. However, this will likely not impact those who are currently contributing the minimum EPF of Rs 1,800 per month. “If you contribute only the minimum EPF today, you won’t see any change,” Balasubramanian said.

High earners may get affected but they too have a choice. Employees with larger salaries can still cap their EPF at Rs 1,800.  “You can ask HR to cap your PF at Rs 1,800,” Balasubramanian added, suggesting the feared drop in take-home pay is not unavoidable.

Minimum wage revamp could push salaries up

The labour codes also introduce a national floor wage, meaning states must revise their minimum wages accordingly. “Nearly 90% of India’s workforce earns around Rs 25,000 or less. They are most sensitive to wage changes,” Balasubramanian said. “If the minimum wage rises, salaries in this segment could actually increase.”  So, while some may see higher PF deductions, a large chunk could benefit from mandatory wage upgrades.

Gratuity after just one year

Among the most employee-friendly reforms is the overhauling of gratuity eligibility. Under the old rule, you needed five years of continuous service. Now, just one year qualifies you.

That’s a realistic approach for today’s job-hopping generation. If one works 12 months, can get 15 days’ salary as gratuity. This sharply improves long-term financial cushioning, especially for younger employees who switch roles frequently.

"Organisations relying heavily on short term contractual or project-based staff will have to make earlier and more frequent gratuity payouts," said Rashmi Pradeep, Partner (head - southern region), Cyril Amarchand Mangaldas.

Who falls under the new rules? The coverage is wider than ever. “Except for informal or casual workers, almost everyone-permanent staff, contract workers, platform workers and gig workers- comes under the new labour codes,” Balasubramanian said.