New wage code 2022: Why your take home salary will be lower
1 min read . Updated: 01 Jul 2022, 10:48 AM IST
Premium- New wage code 2022: The four labour codes proposes that an employees' basic salary should be at least 50 per cent of its net CTC
New wage code 2022: After a delay of more than one year, the much awaited four labour codes on wages, social security, industrial relations and occupation safety, health and working conditions are in news again. The new wage code is hitting headline as Union Labour Minister Bhupender Yadav has exuded confidence saying the four codes may soon become a reality as around 90 per cent of states have already come out with draft rules. For those salaried employees, who are waiting for the implementation of this new wage code, it would be interesting to know that their monthly take home salary will go down after implementation of these four wage codes.
On how an employees' monthly take home salary will go down in new wage code regime, Kartik Jhaveri, Director — Wealth at Transcend Capital said, "The new wage code proposes that an employees' basic salary should be at least 50 per cent of its net CTC (cost to company). In current practice, it is around 20-25 per cent of net CTC of an employee. From social security angle it is good because it will help an employee get more PF (Provident Fund) contribution from its employer as the monthly PF contribution is linked to one's basic salary." However, Kartik Jhaveri maintained that due to rise in monthly PF contribution, an employee's monthly PF contribution will go northward as well. As this employees' contribution is part of its CTC, the net income of an employee post-implementation of new wage code is expected to go down."
As per the EPFO rules, it is mandatory for an employee to contribute 12 per cent of its basic salary in the its PF account. The PF regulator also makes it mandatory for the employers to contribute equal 12 per cent monthly basic salary of the employee in its PF account.
Echoing with Kartik Jhaveri's views, SEBI registered tax and investment expert Jitendra Solanki said, "After rise in basic salary, one's monthly gratuity contribution will also go up as it is also linked with the basic salary of an employee. So, due to rise in monthly gratuity contribution, an employee's monthly take home salary will be negatively affected."
