The government has clarified that the recently introduced Labour Codes will not reduce take-home salaries, as PF deductions will continue to follow the ₹15,000 wage ceiling, with additional contributions being optional.

In a post on the social media platform X, the Ministry of Labour and Employment informed, “The new Labour Codes do not reduce take-home pay if PF deduction is on the statutory wage ceiling. PF deductions remain based on the wage ceiling of ₹15,000 and contributions beyond this limit are voluntary, not mandatory.”

Since the Labour Codes were announced last month, concerns have arisen regarding a reduction in net salary, as the new rule requires that basic pay and related components comprise at least 50% of total wages with the new definition of ‘wage.’ This raised concerns of higher PF contributions and lower take-home pay, according to multiple reports.

According to an earlier Mint report, the change in the definition was expected to affect the calculation of various social security contributions, including Provident Fund (PF), Employees’ State Insurance Corporation (ESIC), Workmen’s Compensation, and maternity benefits, which may also impact take-home salaries. Read the full report here.

However, the EPF wage ceiling is ₹15000, meaning contributions are mandatory only up to this amount. There is no change in take-home pay if deductions are based on this ceiling, according to the Ministry. Employees and employers may voluntarily contribute beyond this limit, but it is not mandatory.

An illustration

The ministry further clarified with an illustration –

An employee is earning ₹60,000 per month, with a basic salary and DA totalling ₹20,000 and allowances of ₹40,000. Assuming EPF contribution of ₹1,800 with 12% contribution under the ₹15,000 ceiling, the take-home pay remains unchanged under both the new and old labour codes.

PF contribution applies only to the statutory wage ceiling of ₹15,000, regardless of the actual basic salary.

Take-home salary before the labour codes

Employer PF (12%) = ₹1,800

Employee PF (12%) = ₹1,800

Take-home salary = ₹56,400

Take-home salary after the labour codes

Employer PF (12%) = ₹1,800

Employee PF (12%) = ₹1,800

Take-home salary = ₹56,400 (unchanged)

The new Labour Codes require allowances to be limited to 50% of total wages. If allowances go beyond this limit, the excess must be included in wages for statutory calculations. However, PF remains tied to the ₹15,000 ceiling unless voluntarily increased.

New Labour Codes

The government released new codes by merging 29 laws into four Labour Codes on 21 November, with the aim of promoting ease of doing business while protecting workers’ rights. These include the Code on Wages, Industrial Relations Code, Social Security Code, and Occupational Safety Code.

Several key provisions have been introduced under the latest Labour Codes, which are likely to impact more than 400 million workers across both the formal and informal sectors.