New Labour Laws: Will It Lower Your Take-Home Salary? Centre Clarifies

The centre has clarified that the recently introduced Labour Codes will not impact take-home remunerartion given that PF deduction will continue to adhere to the Rs 15,000 wage ceiling with additoinal contributions being optional.

In a X post, the Ministry of Labour and Employment said, “The new Labour Codes do not reduce take-home pay if PF deduction is on the statutory wage ceiling. PF deductions remain based on the wage ceiling of Rs 15,000 and contributions beyond this limit are voluntary, not mandatory.”

Since the new labour codes were introduced last month, several were concerned that it would lead to a recduction in net salary, as the new rule requires that basic pay and related components comprise at least 50% of total wages with teh new definition of 'wage'. This raised concerns of higher PF contributions and lower take-home pay, as per multiple reports.

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With the EPF wage limit set at Rs 15,000, it translates to contributions being mandatory only up to this amount.

There is no effect on the take-home pay if deductions are based on this ceiling, as per the Ministry. Employees and employers both can voluntarily contribute beyond this limit, however it is not  mandatory.

The ministry further clarified with an illustration –

An employee is earning ₹60,000 per month, with a basic salary and DA totalling ₹20,000 and allowances of ₹40,000. Assuming EPF contribution of ₹1,800 with 12% contribution under the ₹15,000 ceiling, the take-home pay remains unchanged under both the new and old labour codes.

PF contribution applies only to the statutory wage ceiling of ₹15,000, regardless of the actual basic salary.

Take-home salary before labour codes

Employer PF (12%) = ₹1,800

Employee PF (12%) = ₹1,800

Take-home salary = ₹56,400

Take-home salary post labour codes

Employer PF (12%) = ₹1,800

Employee PF (12%) = ₹1,800

Take-home salary = ₹56,400 (unchanged)

The new Labour Codes require allowances to be limited to 50% of total wages. If allowances go beyond this limit, the excess must be included in wages for statutory calculations. However, PF remains tied to the ₹15,000 ceiling unless voluntarily increased.