New Labour Codes: Why Your Take-Home Salary Won’t Reduce Despite Higher Basic Pay

Fears of reduced in-hand salaries surged after the government notified the new labour codes on November 21, 2025. The revised wage structure mandates that basic pay and related components must form at least 50% of an employee’s total salary. This led many to assume that a higher basic salary would automatically increase provident fund (PF) deductions and shrink monthly take-home income.

However, the Ministry of Labour and Employment has clarified that these worries are misplaced. A detailed explanation from the ministry shows that take-home pay for most salaried employees will remain unchanged, as PF contributions continue to be governed by the existing statutory ceiling.

PF Deductions Still Calculated on ₹15,000 Cap

Under the rules, PF deductions are calculated on ₹15,000, unless an employee and employer jointly opt to contribute on a higher amount. This hold true even if the basic salary increases under the restructured wage model.

For instance, consider an employee earning ₹60,000 per month:

• Basic + DA: ₹20,000

• Allowances: ₹40,000

• PF calculation remains fixed on ₹15,000

• Employer PF: ₹1,800

• Employee PF: ₹1,800

• Take-home salary remains the same: ₹56,400

This calculation does not change under the new labour codes unless someone voluntarily chooses a higher PF base.

Why the Panic Is Unnecessary

The ministry reiterated that the new wage definition is aimed at bringing transparency, not reducing salaries. While the restructured wage components may increase the proportion of basic pay, nothing in the new law mandates PF calculation above ₹15,000.

The only scenario in which take-home income can reduce is:

• If the employer and employee agree to raise PF calculation above the statutory cap.

Since this remains optional, employees will not see automatic reductions in their monthly salaries.

What the New Labour Codes Actually Intend

The objective of the revised structure is to ensure:

• Uniformity in salary components across organisations

• Transparency in wage calculation

• Fair treatment of allowances versus basic pay

Importantly, the codes do not enforce any compulsory hike in PF contribution amounts.

Bottom Line

The widespread belief that the new labour codes would slash take-home salary is not supported by the actual PF rules. For the overwhelming majority of employees, net pay will remain unchanged, and fears of reduced in-hand salary are largely unfounded.

The government has also emphasised that wage restructuring will not trigger automatic salary changes and that PF contributions will continue as before unless voluntarily adjusted.