Lower Take-Home To Hit The Mid-Income Employees Most

The employees with salaries between Rs 6 lakh to Rs 15 lakh could be those who might be impacted by the new Labour Code definition of wages and the social security contribution mandate.

In order to keep the provident fund contribution of these employees below the limit of Rs 15,000 per month, the components other than what constitutes wages have been higher. As per the new Codes, wages - basic pay, dearness allowance (DA), and a retaining allowance – has to be 50 per cent of the cost-to-company. This will increase the PF contribution and reduce take-home salaries of these employees.

The lower take-home salary will mainly affect the mid-level employees who have a large portion of their salary going towards equated monthly instalments of home loans and car loan, school and college fee of children and other utilities. The surplus money for other expenses will shrink.

For an employee with a salary of Rs 6 lakh per annum, the take-home salary will become lower by Rs 10,800 per annum. For a person with Rs 10 lakh salary, the take-home will shrink by Rs 18,000 per annum and for a person with Rs 15 lakh salary, this would be Rs 27,200 per annum.

In the case of fresh employees, the lower salaries will have lesser components that are outside the definition of wages and hence their PF contributions will remain the same.

Top level employees with high salaries will have surplus that even otherwise goes towards savings and increased contribution towards PF will be a good option for long-term savings.