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No salary cut: Labour Ministry says PF wage ceiling won’t affect take-home pay under new codes

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By Sangeeta Ojha

3 min read | Updated on December 11, 2025, 16:16 IST

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SUMMARY

The government has clarified that the new labour codes will not reduce employees’ take-home pay as long as provident fund (PF) deductions are calculated on the EPFO’s ₹15,000 statutory wage ceiling.

take-home pay will not reduce in this condition in new labour codes

The Government has consolidated 29 labour laws into four comprehensive Labour Codes. | Image: Shutterstock

The Ministry of Labour clarified on Wednesday that the new labour codes will not lower employees’ net salaries.

Ever since the new labour codes were notified on 21 November 2025, confusion has emerged among organised sector employees regarding the reduction in take-home salary.

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According to the ministry, provident fund (PF) calculations will remain tied to the existing statutory wage cap of ₹15,000, unless an employee and employer mutually decide to contribute on a higher amount. Even if allowances form a major portion of someone’s salary, mandatory deductions will not be imposed on the full income.

To make this clearer, the ministry shared an example: An employee with a monthly income of ₹60,000, ₹20,000 as basic pay and ₹40,000 as allowances, would see no change in their take-home pay if PF continues to be calculated using the ₹15,000 wage ceiling.

Let's understand the Ministry's tweet:

Total remuneration: ₹60,000 per month

Basic + Dearness Allowance (DA): ₹20,000

Allowances: ₹40,000

Before the labour codes:

PF contribution is calculated only on the statutory wage ceiling of ₹15,000, even if the basic salary is higher.

Employer PF @12%: ₹1,800

Employee PF @12%: ₹1,800

Take-home salary: ₹56,400

After the labour codes:

Total remuneration remains ₹60,000.

Since allowances are more than 50% of total pay, the excess is added back for statutory calculations, but PF is still calculated only on the ₹15,000 wage ceiling.

Employer PF @12%: ₹1,800

Employee PF @12%: ₹1,800

Take-home salary: ₹56,400 (unchanged)

The ₹15,000 EPF wage ceiling determines mandatory PF contributions. Take-home pay does not decrease if PF is calculated on this ceiling.

Also Read | New labour codes 2025 guide for employees: 15 FAQs on EPF, EPS, ESIC, salary and gratuity explained
Under the new labour codes, salary components such as basic pay, dearness allowance, and retaining allowance must now make up at least 50% of a person’s total salary. If basic pay becomes higher, then provident fund (EPF) contribution, which is linked to basic pay, also rises.

Naturally, employees feared that this shift would reduce their monthly take-home pay.

Tax and investment expert Balwant Jain explains the impact clearly: “The new labour code will significantly boost retirement savings for private-sector employees. By ensuring allowances cannot exceed 50% of salary, it pushes up the basic component, which directly increases contributions to EPF, NPS and gratuity. Although employees may receive slightly lower take-home pay, the benefits are far greater over time. They will build a larger retirement corpus, become eligible for a higher pension, receive substantially more gratuity, and even save on income tax because employer contributions are tax-efficient. In the long run, this change strengthens retirement planning and helps employees achieve far better financial security.”
Also Read | Full and Final settlement timeline under new labour codes: What employees should know

The Government has consolidated 29 labour laws into four comprehensive Labour Codes. The four Labour Codes include the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020

The Ministry of Labour and Employment has stated that the new labour codes will not reduce employees’ take-home pay if provident fund (PF) deductions are calculated on the statutory wage ceiling. PF contributions will continue to be based on the ₹15,000 wage limit, and any contribution beyond this ceiling is voluntary, not mandatory.

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About The Author

sangeeta-ojha.webp
Sangeeta Ojha is a business and finance journalist with vast experience across leading media platforms, including Mint and India Today. Passionate about personal finance, she has built a reputation for covering a wide range of PF topics—from income tax and mutual funds to insurance, savings, and investing.

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