On November 21, 2025, india witnessed a significant change in its labor laws with the implementation of the New Labour Code. After a long wait and several deliberations, the labour reforms that aim to simplify, modernize, and unify various labor laws came into effect. However, there is a growing concern among employees: Could their take-home salary decrease due to these changes?

In this article, we break down the key elements of the new labor code and explain how it compares to the old Provident Fund (PF) law, so you can understand what to expect from these changes.

Key Changes Under the New Labour Code:

Uniform Social Security Benefits:

The new code brings all social security benefits under one umbrella. This means that all employees, irrespective of whether they work in the formal or informal sector, will be able to access benefits like Provident Fund (PF), Gratuity, and Employee State Insurance (ESI).

However, the major concern is the increase in mandatory deductions for some employees.

Increased PF Contribution for Employees:

Under the old PF law, employers and employees contributed 12% each of the employee's basic salary towards the Provident Fund (PF).

Under the new code, employers are required to contribute a larger percentage of the salary to the social security schemes, including PF. For some employees, this increase could reduce their take-home salary, as their salary may be subjected to higher deductions.

Revised Salary Structure:

The new code redefines the way basic salary and allowances are calculated. In some cases, the basic salary may be lower than before, but the mandatory contributions towards PF and other social security schemes may increase. This means that while an employee’s gross salary may appear unchanged, their take-home pay could be impacted due to higher deductions.

Changes in Gratuity Rules:

Under the new code, employees will be eligible for gratuity only after completing 5 years of continuous service, as opposed to 4 years under the old law. This is a longer waiting period, which may reduce the amount of time an employee is entitled to receive gratuity.

Uniform Working Hours and Overtime Pay:

The new law brings uniformity to working hours across sectors. The working hours for most sectors are capped at 48 hours per week (or 8 hours per day), with overtime pay applicable for extra hours worked. Employees working overtime will see higher compensation, but there may be some confusion in terms of the implementation of overtime rates.

Employee Redressal Mechanism:

A new grievance redressal mechanism has been introduced under the code, which will streamline the process for employees seeking redressal for disputes related to wages, working hours, and working conditions. This is a positive move for employees, as it aims to make the process more efficient and accessible.

Comparison of the New Labour Code and Old Provident Fund Law:

Aspect

Old PF Law

New Labour Code

Employee PF Contribution

12% of basic salary

May increase, subject to changes in salary structure

Employer PF Contribution

12% of basic salary

May increase as part of new social security norms

Gratuity Eligibility

After 4 years of service

After 5 years of service

Working Hours

Not standardized across sectors

Uniform across sectors, 48 hours per week

Overtime Pay

Based on sector-specific rules

Revised overtime pay rules based on working hours

Grievance Redressal

Traditional mechanisms

Streamlined, simplified process for complaints

Impact on Take-Home Salary:

Higher Deductions for Social Security: The key change under the new labour code is the increase in social security contributions, which could lead to a reduction in take-home salary for some employees. The mandatory increase in PF contributions means that a larger portion of the salary will be deducted each month, reducing the amount employees take home after taxes and deductions.

Revised Salary Components: The shift in salary components could result in some employees receiving lower basic salaries in the new structure, but this should be offset by other allowances or bonuses. However, the impact of higher PF contributions might still result in lower immediate take-home pay.

Improved Benefits in the Long Term: While take-home pay might decrease in the short term due to higher deductions, employees can expect improved retirement benefits, gratuity entitlements, and other social security benefits in the long run. The increased contributions to PF will benefit employees once they retire or leave their jobs.

What Should Employees Do?

Review Salary Slips:
Employees should carefully review their salary slips after the implementation of the new code to understand the new deductions and how it affects their take-home pay.

Consult with HR:
If you have concerns about the changes to PF contributions or other salary components, it’s advisable to speak with your HR department for clarification and details about how the new code affects your salary structure.

Plan for Future Benefits:
Even if your take-home salary decreases in the short term, consider the long-term benefits of higher Provident Fund accumulation and other social security benefits that will be available to you upon retirement or resignation.

Conclusion:

The New Labour Code brings significant changes to India’s labor laws, with a particular impact on employees’ take-home salaries due to increased social security contributions and revised salary structures. While some employees may experience a reduction in immediate pay, these changes aim to strengthen long-term benefits like retirement funds, gratuity, and improved working conditions. Employees are advised to understand the implications of these changes and adjust their financial planning accordingly.

 

Disclaimer:

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.