India’s new labour codes could change how many salaried employees experience their monthly income, even when their annual cost to company remains unchanged. The central shift is that basic pay, dearness allowance and retaining allowance must account for at least 50 per cent of total remuneration under the Code on Wages. Where specified allowances and excluded components exceed that threshold, the excess is added back to wages for calculating statutory benefits.
That accounting change matters because provident fund and gratuity are linked to the wage base. If a larger share of compensation is treated as wages, the amount directed towards long-term benefits can rise. The immediate consequence for some employees, however, may be a reduction in the cash credited to their bank accounts each month.
The issue is not simply whether employees will earn more or less. It is about how the same compensation package is divided between current income, statutory savings, tax-linked benefits and future entitlements. That makes salary architecture, rather than the headline cost-to-company figure alone, increasingly important for workers comparing jobs and employers designing compensation.
According to Vibhore Goyal, founder and chief executive officer of OneBanc Technologies, deductions and higher taxation have resulted in lower take-home salary for employees by up to 5 per cent. The statement was cited by NDTV Business in its report on the effect of the new wage framework and possible salary restructuring.
The Code on Wages requires basic pay, dearness allowance and retaining allowance to constitute at least half of total remuneration for the purpose of the wage definition. The provision also addresses compensation structures in which allowances and excluded components make up a larger share of pay. Once the excess is added back to wages, the base used for statutory calculations can increase.
For employees, this creates a direct trade-off. A higher wage base may mean greater contributions towards provident fund and a different gratuity calculation, but it can also leave less money available as monthly cash. The impact will not be uniform because salary structures differ across companies and individuals.
Employees whose packages contain fewer benefits or tax-efficient components could experience a more noticeable effect on monthly income, according to the NDTV report. The practical outcome will also depend on the employee’s tax regime, eligibility for particular benefits and whether those benefits can actually be used.
This is where salary restructuring becomes important. The proposal described in the report is not necessarily about raising the overall CTC. Instead, companies could reorganise the existing package around benefits that employees can use, while complying with the revised wage definition.
Recent changes to limits for some employee benefits could provide employers with additional compensation-design options. Meal benefits can go up to Rs 200 per meal under specified conditions, which the report says can translate to around Rs 1.05 lakh annually. 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. Higher limits are available for children’s education and hostel allowances under the old tax regime, the report said. These provisions do not remove the statutory effect of a higher wage base, but they can change how an employer allocates the part of compensation that remains available for benefits and allowances.
Goyal described the relationship between the two changes as a possible counterweight. Employees cannot alter the wage law, and employers must comply with it. But compensation can be restructured within the permitted framework. In his assessment, the combination of tighter wage rules and higher benefit limits can help offset part of the negative effect on take-home pay when used appropriately.
The scale of any improvement is not guaranteed. Goyal said companies could improve in-hand pay by up to 10 per cent at unchanged CTC if restructuring is done well. That figure is a claim attributed to an industry executive, not a uniform outcome for all employees. The actual result would depend on the salary structure, tax regime, eligibility, payroll implementation and employee usage.
That last factor is significant. A benefit that exists only on paper does not have the same value as money that reaches an employee’s bank account. The report said Goyal considers ease of use important, including compatibility with UPI and cards, acceptance at ordinary merchants, and integration with payroll and bank accounts.
This moves the debate beyond statutory compliance. Companies may have to explain not only how much they spend on an employee, but also how much is available each month, how much is directed towards provident fund, what gratuity implications apply and which benefits can be accessed in practice. A compensation package can be legally compliant and still be difficult for an employee to understand or use.
The difference becomes clearer when two employers offer the same CTC. The report gives the example of two companies offering Rs 20 lakh. The headline figure is identical, but the monthly in-hand amount, provident fund contribution, gratuity and usable benefits may differ substantially depending on the structure.
This weakens the usefulness of CTC as a standalone measure of a job offer. CTC remains a broad measure of the employer’s annual cost, but it does not by itself show how much an employee receives every month or how much is deferred into statutory and employer-linked benefits. It also does not show whether a tax-efficient benefit is relevant to a particular employee’s circumstances.
For workers, the practical questions therefore become more detailed. They may need to ask how much will be received every month, how much will go towards provident fund, which benefits are included, which of them are tax-efficient, whether they are eligible, and what their annual tax liability is likely to be under the applicable regime.
For employers, compensation design could become part of recruitment and retention. The report said companies that have already restructured their packages may be able to offer higher in-hand pay at the same gross compensation, while companies that have not done so could face a disadvantage when candidates compare actual monthly income rather than headline CTC.
The larger institutional issue is transparency. Changes in wage definitions are implemented through payroll systems, employment contracts and benefit rules, but employees experience them through a salary slip and a bank credit. If those documents do not clearly show the relationship between gross pay, statutory deductions, benefits and take-home income, workers may find it difficult to assess the real value of a job offer.
The available information does not establish that every employee will see a reduction in take-home pay, nor that every company can produce a 10 per cent improvement through restructuring. It does establish a more complex compensation environment in which statutory wage calculations, tax treatment and usability of benefits interact. The next point to monitor is how employers translate the wage requirement into revised salary structures and how clearly those changes are communicated to employees.
