India’s new labour codes are set to change the way salaries are structured. These rules will increase retirement benefits, but they may also reduce the amount of money employees receive in their monthly paychecks.
One major change is that at least 50% of an employee’s CTC must now be counted as “basic pay.” Right now, many companies keep the basic salary low and increase allowances so that employees get more take-home money. With the new laws, that won’t be allowed anymore.
Because of this, PF and gratuity will also go up since both are calculated on basic pay. So, with a higher basic salary, PF and gratuity contributions will automatically rise.
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This will help employees save more for the future, but their monthly in-hand salary may decrease—unless companies decide to increase the overall CTC.
Employees will notice that a larger part of their salary is going into PF and other statutory deductions. This means less liquid cash every month. If companies don’t increase the total CTC, the new structure basically shifts the focus from immediate spending to long-term savings.
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For employers, the new rules mean they will also have to pay more towards PF and gratuity. To manage this, many companies might keep the total CTC the same and simply change the components, which again affects how much employees take home.
Why this new law?
The purpose behind these reforms is good—they want to make salary structures more transparent and help workers build stronger financial security. But in the short term, many people may feel the pinch with a smaller monthly paycheck.
So the bottom line is this: If the CTC remains unchanged, retirement savings will grow, but monthly earnings will drop. Only if companies increase the total package will employees get both good take-home pay and better long-term benefits.
