Labour Ministry Says Labour Code Won’t Reduce Take-Home Pay if PF Deduction is On Statutory Wage Ceiling

Labour Ministry Says Labour Code Won’t Reduce Take-Home Pay if PF Deduction is On Statutory Wage Ceiling

The Government of India had earlier introduced new Labour Codes, and many workers are wondering whether this will affect their take-home pay. The Ministry of Labour and Employment has confirmed that the new Labour Codes do not cut employees’ take-home salary if Provident Fund (PF) deductions are based on the statutory wage ceiling of Rs 15,000. The Labour Ministry clarified that the PF contributions above this limit are voluntary and not compulsory.

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The Ministry of Labour and Employment also gave an example to clear the confusion. Here is the example:

Suppose that you earn Rs 60,000
Basic Pay and Dearness Allowance are Rs 20,000
Allowances are Rs 40,000.

Before the New Labour Code, the PF contribution by employer and employee at 12% would be Rs 1,800 each based on the Rs 15,000 ceiling and the take-home salary would be Rs 56,400.

Now, after the new labour code, the allowances cannot exceed the limit of 50% of the salary. Therefore, the extra amount of Rs 10,000 above this limit would be added back to the wages, making it Rs 30,000. However, the PF would still be calculated on the Rs 15,000 ceiling. The employer and employee both will contribute 12% towards the PF contributions (Rs 1,800 each). Here, the Take-Home salary would still stay at Rs 56,400 as the contributions are based on a Rs 15,000 wage ceiling limit.