Why I’m writing this
I’ve been watching the rollout of India’s new Labour Codes closely. They came into force on 21 November 2025 and, for many jobseekers, they mean a meaningful change in how your CTC (Cost‑to‑Company) is split — and therefore how much lands in your bank each month. I want to give a clear, practical note so you can walk into interviews and offer discussions aware, prepared, and calm.
The simple mechanics (what changed)
- The Codes introduce a uniform definition of “wages” and require that basic pay (basic + dearness/retaining allowance) account for at least 50% of total remuneration for the purpose of statutory calculations. This is the core technical shift.
- Since PF (Employees’ Provident Fund), gratuity and some other statutory liabilities are calculated on wages/basic, an increase in the basic component raises statutory deductions — even if your CTC stays the same.
- The Codes also widen social security coverage (including gig and fixed‑term workers) and change gratuity eligibility rules for fixed‑term employees, among many other reforms. For summaries and examples, see reporting in Economic Times and Business Today.[1][2]
The result you’ll notice: lower in‑hand, higher retirement savings
- If your employer keeps the same CTC but moves components to meet the 50% rule, your monthly in‑hand pay may fall because your PF and related employer/employee contributions go up.
- That money is not lost — it is redirected into retirement and statutory benefits (PF, gratuity). Over the long term this strengthens your social security, but short‑term cash flow can tighten.[1][2]
Who is most likely to see the drop?
- New joiners at firms that currently keep basic pay low and rely on large special allowances and variable pay.
- Professionals whose salary design relied heavily on flexible allowances (special allowance, large variable components) rather than fixed basic.
- Junior or mid‑level employees for whom PF contributions are a larger percentage of current disposable income.
What jobseekers must check and ask (practical checklist)
Before you accept an offer or during negotiations, ask for the written salary breakup and run through this checklist with HR or your recruiter:
- Ask for the CTC breakup: Basic, HRA, Special Allowance, Variable, Employer PF, Employer NPS/gratuity accrual.
- Ask whether the salary breakup shown is post‑Labour Code recalibration or if the company will restructure later.
- Clarify whether variable pay / bonuses are included when computing the 50% threshold for wages — and how they’ll handle months where variable pay spikes.
- Confirm PF treatment: Will the employer continue voluntary higher PF contributions for senior hires, or will they strictly follow statutory minimums where applicable? (Note: statutory EPF rules still treat some higher‑paid employees differently.)
- Request an example: "Show me my expected monthly take‑home before and after the Labour Code changes, for the CTC you’re offering.”
Negotiation strategies (what to ask for)
- If in‑hand matters now (EMIs, schooling, immediate expenses): ask the employer to increase gross CTC so your net take‑home is maintained — or ask them to absorb the additional statutory costs for a transition period.
- Ask for more non‑statutory benefits that don’t increase wages for statutory calculations (for example: meal reimbursements, commuting allowances where valid, or employer‑paid insurance top‑ups), but verify how the Codes treat non‑cash benefits in your case.
- Negotiate timing: ask whether the new breakup applies to all employees immediately or if it’s being phased in for new joiners (companies may adopt different approaches, but check the written offer).
- If you’re offered stock options, sign‑on bonuses, or performance incentives, get clarity on taxation and on when these are counted toward CTC and statutory computations.
Personal finance moves to absorb the shock
- Adjust short‑term budgets: treat the likely drop in monthly cash as real until you confirm otherwise. Rework EMI/expense plans if needed.
- Treat higher PF as forced saving: it increases your retirement corpus and reduces taxable income in many cases — reframe it as automatic retirement planning.
- Keep an emergency buffer of 2–3 months’ expenses while transitions happen.
Why this change is not purely bad news
- The Codes close long‑standing loopholes where employers kept basic low to reduce PF/gratuity liabilities. That means more consistent, fairer long‑term benefits for employees.
- Fixed‑term and many contract workers get better access to gratuity and social security provisions than before — this is a structural strengthening of worker protections.[2]
What I’m watching next (uncertainties to monitor)
- Central rules and clarifications: regulators will issue detailed rules about exactly how “wages” must be computed (examples: treatment of variable pay, non‑cash benefits). These will decide many practical outcomes. Keep an eye on official notifications and employer communications.
- Company choices: some employers may raise CTC, some may restructure offers for new joiners only, others may absorb extra costs. HR communications and offer letters will reveal company strategy.
Quick resources (starter links)
- Read a concise explanation of the likely impact and timelines in Economic Times: https://economictimes.com/wealth/save/new-labour-codes-may-reduce-take-home-salary-but-lower-tax-outgo[1]
- Business Today’s calculator‑style explainer of how CTCs could change: https://www.businesstoday.in/personal-finance/news/story/new-labour-law-2025-salary-calculator-how-ctc-of-rs-7-lakh-rs-10-lakh-and-rs-15-lakh-will-change-503642-2025-11-25[2]
- A CHRO‑focused playbook on how organizations can respond: https://www.compport.com/blog/india-labour-code-2025[3]
Final note — how I advise you to act now
- When you get an offer: ask for the detailed breakup and a sample paystub after the new code is applied. Don’t accept verbal assurances.
- If your take‑home is critical for obligations, ask the employer to either raise CTC or absorb the transition cost.
- Build a short cash buffer and treat higher PF as an enforced retirement saving.
The Labour Codes shift the balance between immediate liquidity and long‑term security. As someone who has spent a lifetime thinking about work, policy and people, I believe the best response for a jobseeker is informed negotiation — and a short‑term plan to protect cashflows while benefiting from stronger statutory safeguards over time.
Regards,
Hemen Parekh
Any questions / doubts / clarifications regarding this blog? Just ask (by typing or talking) my Virtual Avatar on the website embedded below. Then "Share" that to your friend on WhatsApp.
Get correct answer to any question asked by Shri Amitabh Bachchan on Kaun Banega Crorepati, faster than any contestant
Hello Candidates :
- For UPSC – IAS – IPS – IFS etc., exams, you must prepare to answer, essay type questions which test your General Knowledge / Sensitivity of current events
- If you have read this blog carefully , you should be able to answer the following question:
- Need help ? No problem . Following are two AI AGENTS where we have PRE-LOADED this question in their respective Question Boxes . All that you have to do is just click SUBMIT
- www.HemenParekh.ai { a SLM , powered by my own Digital Content of more than 50,000 + documents, written by me over past 60 years of my professional career }
- www.IndiaAGI.ai { a consortium of 3 LLMs which debate and deliver a CONSENSUS answer – and each gives its own answer as well ! }
- It is up to you to decide which answer is more comprehensive / nuanced ( For sheer amazement, click both SUBMIT buttons quickly, one after another ) Then share any answer with yourself / your friends ( using WhatsApp / Email ). Nothing stops you from submitting ( just copy / paste from your resource ), all those questions from last year’s UPSC exam paper as well !
- May be there are other online resources which too provide you answers to UPSC “ General Knowledge “ questions but only I provide you in 26 languages !
Executives You May Want to Follow or Connect
Harsimran Sahni
Macro Portfolio Manager| Equity Investor| IIFT ...
Anand Rathi Global Finance Limited Indian Institute of Foreign Trade About Harsimran is an accomplished financial professional with extensive experience in ...
Loading views...
harsimransahni@rathi.com
ANIL VENHERKAR
Senior Finance Executive | GCC Setup & Scale ...
Finance Director for Technology, Operations, R&D and Program Management functions ... Directed strategic Global Finance Director support covering Product Control, ...
Loading views...
Indira Vidyaprakash
Vice President | Software Development
Vice President | Workday Chennai Site Leader | Software Development | Driving Product Innovation · A seasoned technology leader with 25 years of experience ...
Loading views...
indira.vidyaprakash@workday.com
Ramana Gogula
Vice President, Technology Innovation at Stanley ...
As a serial entrepreneur, founded companies in areas of eLearning, Entertainment and Clean Energy. Developed innovative customer-centric outreach programs that ...
Loading views...
VIKRAM G
Transformational Business Leader | Healthcare ...
Transformational Business Leader | Healthcare & Medical Devices Expert | Driving Operational Excellence & Revenue Growth | Strategic Market Expansion | Team ...
Loading views...
vikram.g@zeiss.com
No comments:
Post a Comment