All four Labour Codes of India pertaining to Wages, Social Security, Industrial Relations and Occupational Safety came into effect from 21 November 2025, triggering one of the biggest salary restructuring exercises that the country has seen in decades. For salaried employees, the most visible impact is on salary breakup and monthly take-home pay, even though overall CTC remains the same.
What has changed under the New Labour Law?
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The new Wage Code introduces a uniform definition of "wages".
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Basic Salary + Dearness Allowance should now be at least 50% of total wages/CTC.
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Earlier, many employees had basic pay at 25–40% of CTC, with higher allowances: HRA, special allowance, etc.
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And with basic forces up to 50%, all components linked to basic—PF, gratuity and some other benefits automatically rise.
Key consequences:
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Basic salary increases for most workers.
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PF contributions increase. PF= 12% of Basic.
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Gratuity liability also increases as gratuity is also calculated on Basic.
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The result is that CTC remains the same, take‑home salary decreases, while statutory savings and long‑term benefits increase.
Impact of Salary: Before Vs After
As explained above, here's how typical salary breakups change for three sample CTC levels when Basic moves from 30% to 50% of CTC.
| Annual CTC | Old Basic (30%) | New Basic (50%) | Employee PF Before (12% of old basic) | Employee PF After (12% of new basic) | Approx. Take‑Home Before | Approx. Take‑Home After | Approx. Monthly Change |
| Rs 7,00,000 | Rs 2,10,000 | Rs 3,50,000 | Rs 25,200 | Rs 42,000 | Rs 49,000/month | Rs 45,500/month | –Rs 3,500 to 4,000 |
| Rs 10,00,000 | Rs 3,00,000 | Rs 5,00,000 | Rs 36,000 | Rs 60,000 | Rs 67,000/month | Rs 62,000/month | –Rs 4,500 to 5,500 |
| Rs 15,00,000 | Rs 4,50,000 | Rs 7,50,000 | Rs 54,000 | Rs 90,000 | Rs 1,00,000/month | Rs 94,000/month | –Rs 6,000 to 7,000 |
These are approximate figures and will vary by company, city, tax bracket, and allowance structure; but the trend is clear: higher PF, lower in‑hand salary.
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Why does take‑home salary drop?
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The new definition requires that Basic must form at least 50% of total wages payable.
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Employee PF is 12% of Basic and employer PF also increases; both are included in CTC.
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Companies cut down flexible components of CTC such as HRA, special allowance, and other perks to “make room” for higher Basic to keep CTC unchanged.
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Also, gratuity is computed on Basic, so the future gratuity liability increases.
Net effect:
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Larger share of CTC goes into compulsory savings (PF and future gratuity).
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Smaller share appears as monthly take‑home.
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In short, same CTC, different distribution: less cash now, more locked in for long‑term security.
Is this bad for employees?
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Short term:
Yes, most employees will feel a pinch as their in-hand salary reduces every month, especially those servicing EMIs or high monthly expenses.
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Long term:
Higher PF contributions result in a bigger, interest‑bearing, tax‑efficient retirement corpus.
Higher Basic means higher gratuity eligibility over time.
Stronger social security and more disciplined savings in the background.
So, it is a trade‑off: short‑term discomfort, long‑term benefit.
What Employees Should Do Now?
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Check your salary breakup carefully once your company migrates to the new structure. Ensure that the Basic constituent is at least 50% of CTC as per law.
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Re-evaluate your monthly budget and EMIs to absorb the lower take‑home amount.
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Review your tax planning, as the variations in HRA and allowances may affect deductions.
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Consider higher PF as not “lost salary” but part of your retirement planning and asset allocation in general.
What Employers Must Prepare For?
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Revise salary structure and employment contracts in line with the new definition of wages.
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Update payroll software and HRMS to correctly compute PF, gratuity, and other statutory contributions.
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Budget for higher long‑term PF and gratuity outflows.
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Clearly communicate the change to employees to reduce anxiety, using calculators and examples like Rs 7L/10L/15L CTC.
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Companies that handle this transparently and proactively are likely to experience smoother transitions and fewer HR issues.
Will overall CTC reduce under the New Labour Codes?
No. In most cases, CTC remains the same, while internal breakup changes, increasing PF and gratuity and reducing take‑home.
Who does this new wage rule primarily affect?
Employees whose basic pay was earlier much below 50% of CTC (often 25–35%) will see the biggest jump in basic and PF, and therefore the largest drop in in‑hand pay.
Does higher PF mean I pay more tax now?
Employee PF contribution within the statutory limit remains tax‑deductible as per existing income‑tax rules, so it doesn’t increase taxable income. It generally improves tax efficiency while cutting disposable cash.
How do the Codes improve social security?
Increased mandatory PF and expanded gratuity coverage under the Codes push more workers into formal, predictable retirement savings and social protection in line with global standards.
The New Labour Law 2025 will definitely alter the Indian salary structure because of its unified wage definition and 50% basic requirement. While the employees initially have to deal with a lower monthly take‑home, they ultimately benefit in the form of higher PF, better gratuity, and stronger social security over time.
For workers and employers, respectively, comprehension of these mechanics and well‑in‑advance planning will hold the key to seamless functioning through this change and turning a regulatory burden into a strong long‑term financial advantage.
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