As the appraisal season comes close, a key question that comes in mind of the salaried employees is how will the new labour codes 2025 impact their take-home salaries. Last year, centre announced that the four Labour Codes - the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020 are being made effective from 21st November 2025, rationalising 29 existing labour laws.
As per the new rules, employers have to take into account 50% of an employee’s CTC to compute social security benefits — employees’ provident fund (EPF), gratuity, and employees’ state insurance component will be linked to this figure. Currently, employers typically restrict the basic component to 30-40% of the total remuneration.
Labour Ministry had clarified that employees whose PF is already calculated on the statutory ceiling, which is Rs 15,000 wage base, will see little or no difference in take-home amounts.
The bigger hit is for those whose PF was earlier calculated on a much lower declared wage than their real CTC.
In terms of gratuity benefits, the contract and fixed-term workers will now be treated much closer to permanent employees. Gratuity is calculated on the expanded wage base. This includes basic salary, dearness allowance and retaining allowance. So payouts are higher than old, low-basic structures.
On a query by Times Now over how the new Labour Codes will impact the salary appraisal this year, taxation experts said this years, employees can expect significant higher provident fund contributions and gratuity liabilities.
Amrita Tonk, Partner at CMS INDUSLAW said, "By capping allowances at 50% of the total remuneration, it dismantles the allowance heavy pay structures traditionally used by employers. Any components in excess of 50% of total remuneration (for e.g. HRA, conveyance etc.) will be treated as part of wages for the limited purpose of calculation of statutory payments like PF, ESI, gratuity etc.
"Many employers are contemplating restructuring CTCs to ensure that wage components account for atleast 50% of the total renumeration which may lead to reduction of take home pay but will not reduce the overall CTC."
"With regard to newly enhanced tax exemptions, while the enhanced tax exemption limits on children’s education allowance and hostel fee may lead to employers incorporating these allowances into CTC in order to attract or retain talent, however it would be important to bear in mind that in case these allowances breach the 50% threshold, the excess amount would be deemed as wages resulting in increased PF contributions and gratuity liability," Amrita told.
Adil Ladha, Partner at Saraf and Partners echoed with Amrita Tonk, and said this appraisal season, expect restructured salary breakdowns with potentially significant higher provident fund contributions and gratuity liabilities. "While salary ratios may tighten in the short term, long term retirement benefits improve significantly. Employers could use the appraisal process to fix gaps in the CTC and reduce impact on take home salary," he said.
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