Will the salary be deducted due to the new labor code or not? Government gave big clarification, relief to lakhs of employees!

The government has made it clear that there will be no cut in your salary due to the recently implemented new labor code. The reason is that PF deduction will be limited to the salary limit of Rs 15,000 and contribution above this will be completely optional. The Ministry of Labor and Employment said this in a post on social media platform X. According to the ministry, if PF deduction is made as per this statutory limit, then the new code will not affect the take-home salary.

PF deduction will be mandatory only up to the salary limit of Rs 15,000. Contribution above this is completely on your choice, not compulsion. Since the announcement of the new Labor Code last month, rumors of reduction in net salary were doing the rounds. The reason was the new definition of ‘salary’ in the new rules, in which the basic salary and related variables must be at least 50 percent of the total salary. It was said in many reports that this may increase the PF contribution and reduce the salary in hand.

Earlier there were reports in the media that this change may affect the calculation of social security contributions like PF, ESIC, workers compensation and maternity benefit, which may impact the take-home salary.

But the salary limit of EPF is still Rs 15,000, that is, the mandatory contribution will be only up to this amount. The ministry says that if the deduction remains based on this limit, there will be no change in the take-home salary. Both the employee and the company together can optionally contribute more, but this is not necessary.

Understand the whole matter with an example

The Ministry has clarified further by giving a simple example. Suppose an employee earns Rs 60,000 every month, of which basic salary and dearness allowance are Rs 20,000 and allowances are Rs 40,000. On the limit of Rs 15,000, Rs 1,800 will be deducted from PF as per 12 per cent contribution. In such a situation, there will be no difference in take-home salary under both the old and new laws. PF contribution will be made only at the statutory limit of Rs 15,000, irrespective of the actual basic salary.

Take-home salary before labor law

Company’s PF (12 percent) = Rs 1,800 Employee’s PF (12 percent) = Rs 1,800 Take-home salary = Rs 56,400

After the implementation of the new labor code

Company’s PF (12 percent) = Rs 1,800 Employee’s PF (12 percent) = Rs 1,800 Take-home salary = Rs 56,400 (no change)

In the new labor code, allowances will have to be limited to 50 percent of the total salary. If the allowances exceed this, the excess amount will be added to the salary for statutory calculation. But excluding optional contribution, the limit of PF will remain Rs 15,000 only.

Announcement of new labor code

On November 21, the government issued four new labor codes by merging 29 old laws. Their objective is to make business easier while protecting the rights of workers. These include Wage Code, Industrial Relations Code, Social Security Code and Occupational Safety Code. There are many important provisions attached to the new code, which will affect more than 4 crore workers in both formal and informal sectors.