Effect of the new labour laws on your take home salary!

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November 23, 2025

New Labour Codes 2025 Impact on Take-Home Salary

Effect of the New Labour Laws on Your Take-Home Salary

From 21 November 2025, the new labour codes redefine how basic salary and allowances are structured – directly influencing your in-hand pay and long-term social security.

Effective Date: 21 November 2025 | Basic Salary ≥ 50% of CTC

At a Glance

➤ Basic pay must now form at least 50% of total CTC.
➤ Take-home salary may reduce as PF, gratuity and other statutory contributions increase.
➤ In the long run, retirement savings grow due to higher social security contributions.

With 20+ years in payroll, Karma Global helps organisations and employees navigate this transition smoothly.

Regulatory Shift

The New Labour Codes 2025

The government has notified new labour laws on 21 November 2025, requiring all establishments in India to ensure that basic salary is at least 50% of the total cost-to-company (CTC). This requires employers to rethink how pay packets are structured going forward from the effective date.

As a consequence, take-home pay for employees could reduce over time, as contributions to retirement and social security – such as Provident Fund and gratuity – are expected to increase.

The government has consolidated 29 central labour laws into four comprehensive Labour Codes: Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), and the Occupational Safety, Health and Working Conditions (OSHWC) Code (2020).

Effective 21 November 2025, these Codes aim to simplify regulatory compliance, strengthen worker protection, and modernise India’s labour framework in line with contemporary economic realities.

Expert View

Karma Global & The Cut in Take-Home Pay

Karma Global: 20+ Years in Payroll Processing

Decoding the real impact on employees’ pay packets

➤ Mandatory retirement contributions including PF and gratuity will rise with the implementation of the Code on Wages.

➤ The new mandate requires that the first half of an employee’s remuneration must consist of at least 50% of total CTC.

➤ Higher contributions towards PF, ESI, gratuity, bonus, leave, etc. will increase overall statutory deductions.

➤ In the long run, this will generate higher retirement corpus, but in the immediate term, the net take-home pay will reduce.

➤ The mandate primarily aims to discourage artificially low basic wages that earlier resulted in lower statutory contributions.

➤ While the change promotes uniformity and consistency, employees will feel the immediate pinch in monthly in-hand salary.

How Employers Are Likely to Respond

Restructuring salary to offset higher statutory outflows

The proverb “what goes up must come down” aptly reflects the balancing act employers must now perform.

➤ Industries operating on thin margins are likely to reduce allowances to offset the higher cost of statutory contributions.
➤ Previously, many establishments inflated allowances up to ~75%, leaving only around 25% as basic wages.
➤ With the new wage definition, Basic Pay + DA + Retaining Allowance must now be at least 50% of total CTC.
➤ The remaining half of the CTC can accommodate other allowances including HRA and conveyance.

Uniform statutory calculations Higher long-term social security

Illustration

How Your Salary Structure Changes

Below is an example of how the salary structure for a ₹50,000 monthly CTC could change under the new rules:

Salary Component	According to the Old Rule	According to the New Rule
Basic Salary	30% of CTC = ₹ 15,000	50% of CTC = ₹ 25,000
Allowances	₹ 33,200	₹ 22,000
Gross Monthly Salary	₹ 48,200	₹ 47,000
Company’s PF Contribution (12% of Basic)	₹ 1,800	₹ 3,000
Employee’s PF Contribution	₹ 1,800	₹ 3,000
Take-Home Pay (Cash-in-hand)	₹ 46,400	₹ 44,000

In this example, the employee’s take-home pay decreases by ₹ 2,400 per month, but contributions towards long-term social security rise substantially.

Why It Matters

Why Partner with Karma Global for Payroll & Compliance

The Necessity of Being with Karma Global

Payroll processing & payroll compliance, end-to-end

➤ Guarantees timely and accurate salary processing.
➤ Minimises the risk of legal penalties and compliance issues.
➤ Strengthens employee trust and satisfaction through transparency.
➤ Supports consistent business growth and operational continuity.

Karma Global’s Payroll Compliance Services

Aligned with the latest labour codes and statutory norms

✔ EPF & ESIC Registration: Assisting in obtaining required EPF and ESI registration numbers.
✔ Payroll Processing: Managing payroll end-to-end, including tax deductions and salary disbursements.
✔ Compliance Filings: Preparation and submission of all mandatory payroll-related returns and documents.
✔ Employee Benefits Administration: Managing Provident Fund, ESI, and compensation claims for employees.
✔ Payment & Withdrawal Management: Tracking contributions and settlements as per statutory norms.
✔ Regulatory Updates: Keeping payroll processes aligned with the latest legal and statutory requirements.

Need to re-structure payroll for the New Labour Codes 2025?

Karma Global can help you redesign salary structures, stay compliant, and communicate the impact clearly to your workforce.

➤ For assistance, write to:
marketing@karmamgmt.com

Effect of the new labour laws on your take home salary!