If you’re hoping for a fat raise next year, new labour codes might make that goal a bit tougher to reach.
India’s recently notified labour codes, which are part of a major overhaul that simplifies and modernises 29 older laws, include changes to how salaries are structured. One provision that’s getting attention from workers and HR teams alike is the requirement that basic pay must make up at least 50% of your total cost to company (CTC).
Why does that matter?
In many companies, employers have traditionally kept basic pay low and packed the rest of your CTC with allowances. That keeps mandatory deductions like the provident fund (PF) and gratuity contributions relatively smaller. With the new rule, employers will need to shuffle salary structures, and that in turn means higher statutory contributions.
This shift doesn’t change your CTC on paper, but it does raise the portion of your salary on which PF and other deductions are calculated. In simple terms, your take-home salary could shrink slightly even if your overall CTC stays the same.
That’s why many analysts are saying the new codes could indirectly dampen the scale of your next salary hike or at least reshape how raises are planned.
Companies might struggle to increase gross pay beyond statutory bumps, especially if they’re dealing with tighter budgets and rising compliance costs under the new framework.
It’s not all bad news, though.
Higher basic pay means greater contributions to your PF and gratuity, which could boost your retirement savings in the long run.
The labour ministry has tried to reassure workers, saying that for many employees—especially those whose PF contributions are capped at the statutory wage ceiling—take-home pay won’t change much.
Still, as the rules settle into practice, both companies and salaried workers will be watching closely to see how salary negotiations, pay hikes, and in-hand incomes are reshaped by India’s newest labour reforms.
