New Labour Code May Affect Take-Home Pay Without Raising Basic Salaries
Labour Code Rule May Hit Take-Home Pay, But Firms Unlikely To Raise Basic Salary To 50%
News 18
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The new labour code mandates that wages must constitute at least 50% of total compensation, but companies are unlikely to raise basic salaries accordingly. Instead, they may adjust allowances, potentially reducing monthly take-home pay while increasing contributions to retirement benefits.
- 01New labour code requires wages to be at least 50% of total pay.
- 02Employers likely to adjust allowances rather than increase basic salary.
- 03Monthly take-home pay may decrease due to higher provident fund contributions.
- 04Employees should focus on basic salary and deductions when evaluating compensation.
- 05Long-term benefits like retirement savings may improve despite short-term pay cuts.
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The new labour code in India requires that wages constitute at least 50% of total compensation. However, analysts suggest that companies are unlikely to simply raise basic salaries to meet this requirement. Instead, employers may recalibrate salary structures by reducing allowances and adjusting statutory components, resulting in a stable Cost to Company (CTC) but potentially lower monthly take-home pay due to increased contributions to provident funds (PF) and gratuity. Tax expert CA Chandni Anandan notes that while the basic pay and dearness allowance may not meet the 50% threshold, employers can reclassify some allowances to comply with the new wage definition. This may lead to higher retirement savings but lower in-hand income for employees. As a result, workers should pay closer attention to their basic salary, PF deductions, and overall take-home pay when assessing job offers or salary increments.
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Employees may see a reduction in their monthly take-home pay due to increased provident fund contributions, impacting their immediate financial situation.
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