New labour law could quietly cut your salary even if your CTC stays the same
For employers, the move increases their own statutory burden. A higher basic pay means a higher employer contribution to PF and gratuity. Companies aiming to maintain payroll budgets may restructure pay without increasing total CTC, further impacting employee take-home.
- Nov 24, 2025,
- Updated Nov 24, 2025 8:03 AM IST
India’s new labour codes are poised to significantly alter salary structures, boosting retirement benefits but potentially shrinking employees’ monthly take-home pay.
One of the key changes under the new labour laws mandates that at least 50% of an employee’s cost-to-company (CTC) must be categorized as “basic pay.” Currently, many companies minimize basic salary and inflate allowances to increase in-hand earnings. That approach will no longer be compliant.
This change has a domino effect. Since both Provident Fund (PF) and gratuity are calculated on basic pay, a higher basic salary will directly raise those contributions. While this means employees will accumulate more retirement savings over time, their in-hand salary may fall—unless employers choose to increase the total CTC.
Employees will see a larger portion of their salary redirected into statutory deductions like PF, reducing the liquid cash available each month. Without an adjustment to the overall pay package, the shift essentially prioritizes long-term security over immediate financial flexibility.
For employers, the move increases their own statutory burden. A higher basic pay means a higher employer contribution to PF and gratuity. Companies aiming to maintain payroll budgets may restructure pay without increasing total CTC, further impacting employee take-home.
The intent of the reform is clear: to formalize compensation structures and strengthen financial security for the workforce. But the short-term reality is a tighter paycheck for many, especially if companies don’t revise CTCs upward.
The takeaway is simple. If CTC stays the same, retirement benefits will improve—but at the cost of monthly earnings. Only if companies absorb the impact by raising total compensation can employees preserve their take-home pay while gaining from stronger long-term benefits.
India’s new labour codes are poised to significantly alter salary structures, boosting retirement benefits but potentially shrinking employees’ monthly take-home pay.
One of the key changes under the new labour laws mandates that at least 50% of an employee’s cost-to-company (CTC) must be categorized as “basic pay.” Currently, many companies minimize basic salary and inflate allowances to increase in-hand earnings. That approach will no longer be compliant.
This change has a domino effect. Since both Provident Fund (PF) and gratuity are calculated on basic pay, a higher basic salary will directly raise those contributions. While this means employees will accumulate more retirement savings over time, their in-hand salary may fall—unless employers choose to increase the total CTC.
Employees will see a larger portion of their salary redirected into statutory deductions like PF, reducing the liquid cash available each month. Without an adjustment to the overall pay package, the shift essentially prioritizes long-term security over immediate financial flexibility.
For employers, the move increases their own statutory burden. A higher basic pay means a higher employer contribution to PF and gratuity. Companies aiming to maintain payroll budgets may restructure pay without increasing total CTC, further impacting employee take-home.
The intent of the reform is clear: to formalize compensation structures and strengthen financial security for the workforce. But the short-term reality is a tighter paycheck for many, especially if companies don’t revise CTCs upward.
The takeaway is simple. If CTC stays the same, retirement benefits will improve—but at the cost of monthly earnings. Only if companies absorb the impact by raising total compensation can employees preserve their take-home pay while gaining from stronger long-term benefits.