India’s employment foundation is undergoing a significant change with the implementation of the new labour rules, published in late 2025. This reform consolidates numerous outdated pieces of legislation into four unified codes, aiming to create a more organised, transparent, and employee-friendly framework.
While these changes promise enhanced long-term benefits, employees must understand how the new law will affect their take-home salary and overall financial planning.
Heads-up: Your take-home salary might decrease.
Read on to learn more about what the latest labour rules are and how they can affect your take-home salary.
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Understanding the New Labour Rules
The new Labour Codes signify a structural consolidation of India’s complex employment regulations. This initiative amalgamates 29 legacy labour statutes into four comprehensive codes:
- The Code on Wages, 2019
- The Industrial Relations Code, 2020
- The Code on Social Security, 2020
- The Occupational Safety, Health and Working Conditions (OSHWC) Code, 2020
While passed by Parliament, the central government is yet to notify the effective date for their implementation.
The Impact of New Labour Rules on Your Salary
The most critical change introduced by the Code on Wages, 2019, is a new, uniform definition of ‘wages’. This rule requires that an employee’s basic pay must be at least 50% of their total compensation (CTC), with other allowances capped at a maximum of 50%. This directly impacts statutory contributions like the Employee Provident Fund (EPF), as they are calculated based on this ‘wage’ definition.
Here’s a simplified breakdown of how this rule will affect different employees:
Case 1: Employees with Basic Salary currently less than 50% of CTC
(Common in IT, Startups, Sales, and sectors with high variable pay)
| Feature | Impact Under the New Rule | Explanation |
| Applicable Rule | Section 2(y) of the Code on Wages, 2019 | This section defines ‘wages’, forcing basic pay to be at least 50% of total remuneration for the calculation of social security benefits. |
| Basic Salary | Increases | Your company must restructure your salary to raise the basic component to the 50% threshold. |
| EPF Contribution | Increases | Since PF is calculated at 12% of basic salary, a higher basic pay leads to a higher monthly PF deduction (from both employee and employer). |
| Monthly Take-Home Salary | Decreases | The increased PF deduction reduces your net in-hand salary each month. |
| Long-Term Savings | Significant Increase | Your retirement corpus (PF and Gratuity) will grow much faster, ensuring greater financial security in the long run. |
Case 2: Employees with Basic Salary currently more than 50% of CTC
(Common in Manufacturing, Public Sector, and traditional industries)
| Feature | Impact Under the New Rule | Explanation |
| Applicable Rule | Section 2(y) of the Code on Wages, 2019 | Your salary structure is already compliant with the new definition. |
| Basic Salary | No Change | No salary restructuring is required, as your basic pay already meets the 50% mandate. |
| EPF Contribution | No Change | Your PF contributions will continue as before. |
| Monthly Take-Home Salary | No Change | Your in-hand salary will not be affected by this specific rule. |
| Long-Term Savings | Remains on Track | Your retirement savings will continue to accumulate at their current, stable rate. |
Note: As of now, the law does not specify different rules for various salary sections (e.g., below ₹25,000 or ₹50,000 per month). The 50% basic pay rule applies universally to all employees covered under the codes.
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Major Changes & Key Details of the New Labour Code
Here are the major technical changes that the new Labour Codes will introduce:
- New Definition of ‘Wages’: As highlighted, the most critical change is the uniform definition of ‘wages’. The law mandates that allowances cannot exceed 50% of an employee’s total compensation, forcing the basic salary to be at least 50% of the total pay (CTC).
- Increased Provident Fund (PF) Contributions: Since PF is calculated as a percentage (12%) of the basic salary, increasing the basic salary to meet the 50% rule will automatically increase the monthly PF contributions.
- Impact on Take-Home Salary vs. Retirement Corpus: The direct consequence of higher PF contributions is a reduction in the net take-home salary for many, but this leads to a significant increase in their overall retirement savings (PF and Gratuity).
- Change in Gratuity Calculation: Gratuity will also be calculated on the new, potentially higher ‘wage’ definition, leading to a larger payout.
- Implementation Status: A crucial point is that these codes are not yet in effect. The central government has deferred the implementation, and a final date has not been announced.
- Flexible Work Week with a Hard Cap: The codes introduce flexibility, allowing for a 4-day work week. However, this is underpinned by a strict rule: the maximum weekly working hours remain capped at 48 hours. Any work beyond this limit must be compensated as overtime.
Also Check: EPF Calculator – Calculate Now!
How Take-Home Salary Might Change Under New Labour Rules
The new Labour Law in India will invariably lead to changes in take-home salary for many employees. While an employee’s total Cost to Company (CTC) remains unchanged, the statutory contributions will rise.
Consider an example scenario for an employee earning an annual CTC of ₹10,00,000:
- Old Regime: Under previous structures with a low basic pay (e.g., 30%), the take-home salary after taxes and standard PF might have been around ₹6.5–7 lakhs annually.
- New Regime: With the basic pay increased to 50% as per the new law, the take-home salary could drop by ₹20,000–₹40,000 annually due to higher PF deductions.
This variation depends significantly on an individual’s previous salary structure.
Effects of New Labour Rules on Retirement Benefits
The new Labour Law significantly enhances long-term financial security. Since PF and gratuity are now calculated on a higher basic pay, employees’ retirement savings will grow substantially over time.
While the short-term impact involves a smaller monthly paycheck, the long-term benefits are considerable:
- Increased PF corpus, leading to a larger retirement fund.
- Higher gratuity payouts upon leaving an organisation.
- Greater pensionable income, enhancing post-retirement financial security.
- Extension of social security benefits to gig workers and contract staff, who were previously often excluded.
Also Check: Gratuity Calculator
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Sector-Specific Impacts of New Labour Rules
The impact of the new wage code will not be uniform across the Indian economy, as prevailing salary structures vary significantly.
Information Technology (IT), Startups, and Services:
- Current Structure: Basic pay often constitutes only 30-40% of the CTC, with the remainder composed of high variable pay and allowances.
- Impact: High. Companies will face significant restructuring. Employees are likely to see a noticeable decrease in their monthly take-home salary, even as their retirement corpus grows faster.
Manufacturing, Engineering, and Core Sectors:
- Current Structure: These industries traditionally have more rigid pay structures, with basic pay often ranging from 45-55% of CTC.
- Impact: Low to Moderate. Many companies may already be compliant. The impact on take-home pay for the majority of their workforce will be minimal.
Banking, Financial Services, and Insurance (BFSI):
- Current Structure: This sector presents a mixed model, with the fixed basic component often around 40-45% of CTC.
- Impact: Moderate. This sector will need to make adjustments. Employees in performance-driven roles will likely see their fixed pay component rise, leading to higher PF deductions.
Who Gains & Who Loses Under These Changes?
To put it into perspective, there are short-term and long-term impacts of the latest update to the labour rules:
- Short-Term Impact: Employees with heavily allowance-based salaries will likely experience a reduction in in-hand salary. This could lead to an initial perception of a new Labour Law ‘salary cut’.
- Long-Term Benefits: Workers approaching retirement will benefit from significantly higher PF and gratuity accumulations. Employees who prioritise retirement savings and individuals in gig or contract roles will find the new structure advantageous.
Employer Response and Employee Preparedness
Employers are actively preparing for the new law and will likely rework salary structures. As an employee, proactive steps are essential:
- Request your revised salary structure from your HR department.
- Understand your new PF, gratuity, and tax deductions.
- Adjust your monthly budgeting if your take-home salary is affected.
- Evaluate the long-term gains in retirement planning.
Conclusion
The new Labour Law introduces a foundational shift in how compensation is structured in India.
While it may initially pinch your take-home salary, the long-term benefits, such as stronger retirement savings and enhanced social security, ultimately outweigh these immediate downsides.
Staying informed and planning ahead are crucial steps to align your financial goals with this new salary framework.
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