Understanding the New Labour Codes and Your Salary
Starting November 21, 2025, new labour codes introduce a common framework that affects how salaries, provident funds, and gratuity are calculated. A key provision mandates that a worker’s basic salary must be 50% of the gross CTC (cost to company). This change is designed to simplify compliance, standardize remuneration structures, and strengthen worker safeguards. While the move can improve long‑term retirement benefits, it may also result in a lower take‑home pay for some employees as more of the compensation is redirected into retirement provisions.
Why Basic Salary at 50% of CTC Matters
Historically, many payroll structures varied widely in how basic pay, allowances, and retirement contributions were distributed. By anchoring basic salary at 50% of CTC, the code attempts to create transparency and consistency. The effect on your take‑home pay depends on how your employer rebalances other components, such as allowances and bonus structures, to align with the 50% rule. For employees saving for retirement, this shift can translate into higher mandatory contributions to provident funds and gratuity, protected by increased employer and government oversight.
Provident Fund: What Changes?
The provident fund is a critical pillar of retirement planning in many jurisdictions. With the new codes, mandatory contributions are likely to rise as retirement savings are prioritized within the 50% basic framework. Expect a higher percentage of your earnings to be allocated toward provident fund contributions, which could reduce immediate disposable income but boost long‑term security. Employers may also face stronger responsibilities to match or supplement employee contributions, further elevating retirement savings over time.
Gratuity: A Stronger Safety Net
Gratuity is a lump-sum retirement benefit payable on termination due to resignation, retrenchment, or retirement, usually calculated based on years of service and last drawn salary. With the new codes emphasizing structured retirement benefits, gratuity provisions may increase or become more standardized. This change can be especially meaningful for employees with long tenure, ensuring a meaningful retirement cushion as costs of living rise and pensions evolve.
Strategies to Improve Your Retirement Provisions from Home Salary
Even with systemic changes, you can take practical steps from home to optimize provident fund and gratuity contributions while maintaining a sustainable take‑home pay. Here are actionable strategies:
- <strongReview your pay structure: If your employer offers multiple allowances, ask how these will be adjusted under the 50% basic requirement. Seek a balance that preserves essential take‑home pay while ensuring retirement contributions meet your goals.
- <strongMaximize mandatory contributions: Confirm the exact provident fund and gratuity contribution rates. If there’s an option to voluntarily contribute more to your provident fund, assess whether the tax benefits and long‑term gains justify the short‑term budget trade‑offs.
- <strongUtilize salary exchange plans: Some employers provide salary sacrifice arrangements for retirement savings. Such plans can optimize tax efficiency while growing retirement funds.
- <strongTrack your retirement goals: Use online calculators to model how higher provident fund and gratuity contributions affect long‑term wealth, including expected pension or lump sums at retirement.
- <strongBudget for the transition: If your take‑home pay decreases, adjust monthly expenses or set up automatic transfers to retirement accounts to avoid lapses in contributions.
What Employers Should Prepare For
Human resources teams should align payroll systems with the 50% basic rule, automate compliant deductions, and communicate clearly with employees about changes. Transparent notices can help workers understand how their retirement benefits are evolving and what actions they can take to optimize their financial planning without compromising immediate needs.
Bottom Line
The November 2025 rollout of the new labour codes aims to standardize compensation, simplify compliance, and bolster retirement safeguards. While higher provident fund and gratuity contributions may affect take‑home pay for some, the broader goal is stronger financial security in old age. By actively reviewing your pay structure and exploring retirement‑savvy strategies from home, you can balance current needs with future stability.
