Stories
New Labour Code Impact on Salary: Understand Changes to PF, In-Hand Pay and Gratuity
- •The new wage definition in the Labour Code can alter salary structures for employees whose basic pay makes up a smaller portion of their compensation.
- •If allowances exceed 50 percent of total compensation, companies may need to restructure salaries to comply with the rules.
- •Monthly in-hand salary may decrease if increased wage calculations lead to higher Provident Fund deductions.
- •While take-home pay might drop for some, higher contributions to PF and gratuity will boost long-term savings and retirement benefits.
- •Eligible fixed-term employees can now receive gratuity benefits after completing just one year of continuous service under new provisions.
Key Questions Answered
Under the new Labour Code, basic salary, dearness allowance, and retaining allowance are considered together. If allowances excluded from the definition of wages exceed 50 percent of total compensation, the extra amount must be added to wages, prompting companies to restructure salaries and potentially reducing the monthly in-hand salary for some employees.
CTC represents the total cost incurred by the company on an employee, including PF, insurance, and gratuity. Gross salary is the total compensation before deductions like professional tax and TDS, while in-hand salary is the final take-home pay credited to the bank account after all deductions.
If an employee's salary shifts toward a higher basic wage share under the new rules, the PF calculation basis increases, causing monthly PF deductions to rise. Although this may decrease the immediate take-home pay, a larger deposit into the PF account builds stronger long-term retirement savings.
