50% basic pay rule: New labour code may reduce take-home salary, boost PF savings

India’s upcoming labour code could bring a major change to how salaries are structured, especially through the proposed 50% basic pay rule. The rule is expected to increase basic salary as a share of total pay, which may lower monthly take-home income for many employees while improving long-term retirement benefits.

At present, many companies keep the basic salary portion low and offer higher allowances such as house rent allowance, special allowance and bonuses. Under the new wage rules, basic pay may need to account for at least 50% of total salary, reducing the scope for excessive allowances.

If basic pay rises, employee and employer contributions to the Employees’ Provident Fund are also likely to increase, since PF is calculated on basic wages. This means workers may receive less money in hand each month after deductions.

However, higher PF contributions can help build a larger retirement corpus over time. Gratuity payments may also increase, as they are linked to basic wages.

Experts say the impact may vary depending on company salary structures and whether employers revise total compensation packages. Some employees may see only minor changes, while others could notice a sharper fall in monthly take-home pay.

For salaried workers, the new labour code may bring short-term pressure on monthly cash flow, but stronger social security benefits in the future.