Govt ends confusion: New Labour Codes won’t cut your take-home pay if PF stays on Rs 15,000 ceiling

After a lot of questions and confusion about how the new Labour Codes might affect your salary and take-home pay, the Labour Ministry has finally clarified things. On Wednesday, they confirmed that employees whose Provident Fund (PF) deductions are based on the statutory wage ceiling of Rs 15,000 won’t see a drop in their take-home salary. This specifically refers to those contributing Rs 1,800 per month to their PF (which is 12% of Rs 15,000).

The ministry explained in a social media post on X (formerly Twitter) that the new Labour Codes do not reduce your take-home pay if your PF deduction is calculated on the Rs 15,000 wage ceiling. PF deductions will continue to be based on this ceiling, and any contribution beyond it will be voluntary, not mandatory.

"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 Rs 15,000, and contributions beyond this limit are voluntary, not mandatory,” the Labour Ministry says in a social media post on X (formerly Twitter).

Therefore, if your basic salary is below Rs 15,000, and your revised wage under the new Labour Codes goes up, your PF contribution might increase — but only up to the Rs 15,000 limit. So, you won’t be forced to pay more PF if your revised wage crosses that ceiling.

For employees whose basic salary or revised wage (which is considered 50% of the Cost to Company, or CTC) is higher than Rs 15,000, the new rules don’t mandate higher PF deductions beyond this limit. Even if your revised wage is more than Rs 15,000, the extra contribution is voluntary — you’re not required to pay more than before.

 

What does this mean

The Labour Ministry’s illustration explains how the new wage definition under the labour codes affects Provident Fund (PF) calculations for an employee earning a total monthly remuneration of Rs 60,000, where Basic + DA is Rs 20,000 and allowances are Rs 40,000.

Under the labour codes, if allowances exceed 50% of total pay, the extra portion must be added back to “wages” for statutory deductions. In this example, allowances make up two-thirds of the salary, so ₹10,000 of the excess allowance is added to the wage component. This takes the statutory wage for PF purposes from Rs 20,000 to Rs 30,000.

However, despite this recalculated wage, PF contributions continue to be based on the statutory wage ceiling of Rs 15,000, unless the employee and employer mutually choose to contribute on a higher amount. Because the minimum requirement remains unchanged, both employer and employee PF contributions stay at Rs 1,800 each (12% of Rs 15,000), exactly the same as before the labour codes.

As a result, there is no impact on take-home salary, which remains Rs 56,400 in both scenarios. The ministry also clarifies that contributing PF on wages above Rs 15,000 is optional and not mandated by law.

Even though the Labour Ministry has clarified that higher EPF deductions are not mandatory, other factors could reduce employees’ take-home pay. If the revised wage is higher than the current basic wage (basic pay + dearness allowance + retaining allowance), employers will deduct more for gratuity. Additionally, leave encashment during employment may also lower net salary. Experts say that when basic wages are adjusted to meet the 50% of total remuneration rule, employer contributions for PF, gratuity, and NPS increase, with gratuity deductions seeing the biggest impact.

"The new Labour Code mandates that at least 50% of an employee's total cost-to-company (CTC) must be classified as "wages," including Basic Salary, DA, and RA. This change will force companies to restructure salary components, especially for employees receiving large allowances or flexible pay elements. As a result, the fixed wage portion will increase, creating a higher base for calculating mandatory contributions like PF, gratuity, and NPS. Overall, this reform aims to standardise wages and increase social security benefits but may reduce the flexibility of salary structures," said CA Dr Suresh Surana.