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The Central Government has implemented the new Labor Code, which will change many rules ranging from salary to working hours and safety. It will be mandatory for companies to keep the basic salary at least 50 percent of the total CTC, due to which the salary structure may change. Experts say that increase in PF and gratuity may reduce take-home salary, although its impact will depend on the policies of the companies.
New Delhi. The central government has implemented major labor reforms under the four labor codes of India, which will affect almost every type of employee working in the country. Under the new rules, provisions related to salary structure, holidays, working hours and social security have been made uniform. After the issuance of the notification, now companies will need to change their salary structure according to the new laws, especially regarding basic salary.
What will change with the 50% rule of basic salary?
The biggest impact of the new labor code will be on the basic salary of the employees. According to the rules, now the basic pay should be at least 50 percent of the total CTC. According to a report, with this change the share of PF and gratuity will increase because both are calculated on the basic salary only. Due to this, companies may have to reduce the share of allowances and the salary structure may change completely. According to experts, this step will increase the retirement security of the employees, but the take-home salary may be slightly reduced.
PF and gratuity will increase, take-home may decrease
Many experts believe that due to increased basic salary, there will be an increase in mandatory PF and gratuity. Since PF is calculated at 12 percent of the basic salary, the PF deduction will also increase with higher basic. Experts said that if companies keep the gross salary the same and only change the structure, the net take-home salary of the employees may reduce. While the new definition of salary will strengthen social security, the amount taken home may reduce if the allowance is reduced.
Impact on all sectors and strategies of companies
The new labor codes will be applicable to almost every industry – be it IT, media, plantation, manufacturing or contract workers. Experts say that companies can adopt two types of strategies after this change – either balance the PF increase by increasing the gross salary of the employees, or change the structure by reducing the allowances. With the new policy, gratuity payment will also be higher, as it will now be calculated on the broader wage base. Overall, the purpose of the new laws is to increase social security, but its impact is sure to hit the pockets of the employees.
