Understanding the New Labour Codes and Your Home Salary
The upcoming labour reforms, effective November 21, 2025, introduce a standardized approach to compensation across many employers. A key change is that the basic salary must comprise 50% of the total cost to company (CTC). While this aims to simplify compliance and enhance worker protections, it can also impact take-home pay. For employees calculating a “home salary” — the net amount you actually use to meet monthly expenses — the shift demands careful budgeting and a proactive approach to retirement contributions.
What the 50% Basic Means for Take-Home Pay
With the basic salary set at 50% of CTC, many components that previously counted toward gross pay (such as allowances) may be reorganized to fit the policy. While the basic is higher, other allowances might be adjusted, which can result in a different net take-home. To plan effectively, you should:
– Recalculate your monthly take-home using your new CTC structure.
– Review which components are fully taxable and which enjoy tax exemptions.
– Consider the impact on monthly budgets such as housing, transport, and meals.
Practical steps to protect your home salary
- Ask HR for a detailed breakdown of your revised CTC and the share of basic salary.
- Forecast your essential expenses against your new net pay and adjust savings targets accordingly.
- Set aside a portion of your pay as retirement contributions to preserve long-term wealth.
Rising Provident Fund (PF) and Gratuity Contributions
One of the social safeguards under the new rules is a more consistent and potentially higher retirement corpus. Provident fund contributions are typically a fixed percentage of basic salary, and with the basic increasing to 50% of CTC, your PF contributions may rise accordingly. Similarly, gratuity—the end-of-service benefit—could see adjustments to align with the higher benefit threshold over the tenure of service.
How to optimize PF and gratuity under the new regime
- Verify the PF rate applicable to you (employee and employer portions) and confirm any changes with your HR department.
- Consider voluntary provident fund (VPF) contributions if you want to boost your retirement corpus beyond the statutory minimums.
- Track your gratuity eligibility, especially if you plan to switch jobs. gratuity accrual is typically tied to continuous service; understand the new thresholds and payout timelines.
<h2 Budgeting and Financial Planning Tips
To ensure your home salary remains robust in everyday life while maximizing retirement benefits, adopt disciplined budgeting and smart saving strategies:
- Automate monthly PF and gratuity contributions where possible; treat them as fixed expenses.
- Create an emergency fund covering 3–6 months of essential expenses, separate from retirement savings.
- Review tax planning opportunities, including deductions associated with employer contributions to retirement accounts.
Employer and Employee Considerations
Employers are encouraged to document the restructuring of salaries clearly and transparently. Employees should request written breakdowns of CTC, basic, allowances, and retirement contributions to avoid surprises at the payroll window. Good communication helps ensure the transition preserves your home salary value while meeting safeguard objectives.
Conclusion
As the new labour codes come into effect, understanding how the basic salary at 50% of CTC affects your home salary and retirement contributions is essential. By proactively recalibrating your budget, maximizing provident fund and gratuity contributions, and seeking clarity from HR, you can protect short-term financial stability while building long-term security for retirement.
Country context: India 🇮🇳. Always consult a financial advisor or your HR team for personalized guidance on how these reforms apply to your pay structure.
