Labour Code 2020: Lesser take-home salary, more gratuity for private employees

The contribution towards PF will increase for both employees and employers, so wages may need to be restructured for staff of private companies


As per the Code on Wages, which will come into effect in April, private companies will have to take a relook at the salary structure of their employees. With the contributions to the employees’ provident fund increasing, and an increment in the gratuity payment as well, the employees may end up getting lesser salary in hand.

The rules state that in order to calculate gratuity and PF contribution, the wages will have to be at least 50 per cent of the total salary of the employees. This means, employers will have to hike the basic pay, which will require a proportionate hike in gratuity payment as well as PF contribution (both of which are a percentage of the basic).

Therefore, the employees will take home lesser salary but at the same time, will have a better retirement fund to rely on in the latter part of their lives.

Currently, the contributions towards PF are voluntary if the salary is more than Rs 15,000. The limit of the contributions can be fixed at 12 per cent of Rs 15,000. However, if the employer and employee are currently calculating PF contribution and gratuity on the full basic salary, then to revert to the Rs 15,000 limit will the employees and employers to give a joint declaration.

The new Code will not allow employers to resort to higher allowances in order to ease their burden of PF or gratuity payments.

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