New Labour Codes May Cut Take-Home Pay. This Salary Trick Could Offset It

For a salaried employee, the most important number on the salary slip is not the CTC. It is the amount that lands in the bank account every month.

That number could come under pressure as the new Labour Codes change how wages are calculated for statutory benefits such as provident fund (PF) and gratuity.

But there is a possible counterweight. Salary restructuring could help companies protect employees' take-home pay without increasing their overall CTC.

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Under the Code on Wages, basic pay, dearness allowance and retaining allowance are required to account for at least 50 per cent of total remuneration for the purpose of the wage definition. Where specified allowances and excluded components exceed the 50 per cent threshold, the excess is added back to wages for statutory calculations.

That can increase the amount considered for PF and gratuity.

For employees, this creates a familiar trade-off. More money could go towards long-term retirement benefits, but less may be available as monthly cash.

"Deductions and higher taxation has resulted in lower take-home salary for employees by up to 5 per cent," Vibhore Goyal, Founder & CEO, OneBanc Technologies, told NDTV.

Who Could Feel The Impact More?

The impact will not be identical for every employee.

Those with salary structures that have fewer benefits or tax-efficient components could see a more noticeable effect on their monthly income.

At the same time, recent tax-rule changes have increased the limits available under some employee benefits.

For example, meal benefits can now go up to Rs 200 per meal, translating to around Rs 1.05 lakh annually under specified conditions. The benefit is available under both the old and new tax regimes, according to the details cited by Goyal.

The gift and voucher exemption has also been increased to Rs 15,000. There are also higher limits for children's education and hostel allowances under the old tax regime.

This is where salary restructuring enters the picture. "Employees cannot change the law and employers must comply, but salaries can be restructured. Laws tightened wages, new tax laws increased benefit limits. Used properly, that counterweight restores the negative hit," Goyal said.

Can Restructuring Protect Take-Home Pay?

The idea is relatively straightforward. Instead of looking only at basic salary and cash allowances, companies can build a compensation package around benefits that employees can actually use.

The objective is not necessarily to increase CTC. It is to make the existing CTC more efficient. According to Goyal, "Done well, companies can improve in-hand pay by up to 10 per cent at unchanged CTC."

But the actual benefit will depend on an employee's salary structure, tax regime, eligibility and whether the benefits are genuinely used.

A benefit that looks attractive on paper has little value if employees cannot use it easily. Goyal said the platform should be intuitive, work with UPI and cards, be accepted at ordinary merchants and connect with payroll and bank accounts.

CTC May No Longer Tell The Full Story

The changes could also alter how employees compare job offers.

Consider two companies offering a CTC of Rs 20 lakh. The headline figure is identical. But the monthly in-hand salary, PF contribution, gratuity and usable benefits could be very different.

That makes the salary structure increasingly important. Employees may therefore need to ask employers not just, "What is my CTC?", but also:

How Much Will I Receive Every Month?

• How much will go towards PF?
• What benefits are included?
• Which benefits are tax-efficient?
• Can I actually use those benefits?
• What will my annual tax liability look like?

For employers, compensation design could become an important part of hiring and retention.

Goyal said companies that have already restructured their packages can offer higher in-hand pay at the same gross compensation, while those that have not may find themselves at a disadvantage when candidates compare actual monthly income.