How new labour codes are changing your paycheque

Your weekly money update starts with the new labour codes announced last week. The government has replaced 29 old labour laws with four new Labour Codes to make life better for workers and simpler for employers.

These changes aim to ensure pay parity, minimum wages, safer workplaces, and stronger social security benefits, while also bringing India closer to global standards.

For employees, this means a guaranteed minimum wage, equal pay for men and women, and a greater emphasis on health, including mandatory preventive check-ups for workers over 40 years of age.

The other important change is how your wages will be defined. Earlier, companies could keep your basic pay low and give more money as allowances to reduce statutory payments like gratuity, which is calculated on the basic salary. However, under the new rules, at least 50% of your total salary (cost to company, or CTC) must be treated as wages (also referred to as deemed wages) for the purpose of calculating benefits. Shipra Singh writes about how this would increase gratuity payments and leave encashment allowances, but may reduce maternity benefits.

There’s another big benefit: Fixed-term employees will now get gratuity after just one year of service, instead of the earlier five-year rule. This simply means that not only is your future gratuity payout likely to go up, but fixed-term employees will also get this benefit much sooner than before.

It’s also important to note that if your monthly salary is above ₹15,000, there will be no major change in your provident fund (PF) contribution. Your employer can still calculate their PF contribution only on ₹15,000 (the maximum threshold for mandatory EPF contributions), instead of your full salary. In other words, if your basic pay was, say, ₹25,000 and the employer chose to contribute ₹3,000 (12% of ₹25,000), it can either continue to do so or lower its contribution to ₹1,800 (12% of ₹15,000). Although this threshold wage is likely to be increased soon.

While the new labour codes are good news for workers, they are likely to increase costs for employers. And this makes the variable pay trend important to understand.

Companies are now increasing the variable performance-linked part of the salaries, which are typically linked to the company’s performance, revenue targets, and individual performance. Earlier, this was limited to senior leaders, but it is now becoming common even at mid-management and junior roles.

Instead of receiving a higher monthly income, many households need to brace for income lumps paid out during the bonus season. This creates a new challenge for financial planning and can dictate how families save, spend, and invest. The smart move is to ensure your fixed monthly salary covers all essential and basic lifestyle expenses, with enough earmarked for regular investments. The bonus can then be used to top up your investments and for large, one-time spends. In this story, Shipra speaks to people navigating this change and shares a practical playbook.

In the world of investments, we have two interesting stories.

Parag Parikh Mutual Fund, known for running fewer funds and investing its own money alongside investors, created a lot of buzz with its decision to enter the already crowded large-cap fund space. With the largest flexi-cap fund already under its belt, the fund house plans to launch a large-cap fund in January next year. Borrowing from the passive style of investing, the strategy will be to closely follow the Nifty 100 index. The idea is to keep costs comparable to an index fund, while trying to deliver slightly better returns through smart execution. Maulik M explains the fund house’s thinking and why, for now, investors may be better off sticking with a simple index fund until this new fund builds a track record.

For those looking at corporate bond investing, Jash Kriplani in this story gives you a complete download on Online Bond Platforms (OBPs). OBPs were launched in 2022 to ease investor entry into the bond market. Think of them as a marketplace for corporate bonds that offers retail investors access to buy and sell corporate bonds with a ticket size of as low as ₹10,000. India now has 44 such platforms with monthly transactions nearly tripling compared to last year. Buying bonds has become as easy as buying mutual funds, but don’t forget the basic do’s and don’t’s of bond investing, which starts with matching the risk-return-timeline with one’s goal.

And if you are an NRI (non-resident Indian) planning to buy property in India, this is a must-read. Anagh Pal spoke to two NRIs—both chartered accountants—who still found it difficult to handle tax rules and paperwork while buying property back home.

Buying real estate back home in India can be complicated. The distance makes it harder to do proper checks, verify documents, and manage on-ground processes, which makes local support almost essential.

The struggle is not limited to purchasing. Renting out the property comes with its own set of challenges, such as finding a good tenant or getting market-linked rentals. Selling the property can be another nightmare. This story details the various trials and tribulations NRIs need to be prepared for when looking to invest back home.

And if you’re curious about how startup founders who have built companies and made it to IPOs handle their wealth, this is a good read. This interview with Ashish Shanker, managing director and CEO of Motilal Oswal Private Wealth, explains how these new-age millionaires think about money. Having built companies in high-risk environments, many founders also carry that high-risk appetite into their investing, compared to traditional wealthy families.

In weekly Mint Money videos, I spoke with Madhu Damodaran, a member of the Central Board of Trustees of the EPFO, about the proposed changes that make accessing EPF money easier but come with a longer wait time for complete withdrawal. Damodaran also takes questions from the readers on the new EPF rules.

That’s all we have from the Mint Money team. Have a great weekend!

Deepti Bhaskaran is editor, Mint Money, with close to two decades of experience as a personal finance journalist. Her work reflects a strong focus on financial literacy, consumer protection and practical money management.