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Effect of the new labour laws on your take home salary!
The government has notified new labour laws on 21st November 2025 requiring all establishments in India to ensure basic salary gets stretched to at least 50% of the total cost-to-company (CTC), necessitating direction into envisaging how pay packets should be structured going forward from the effective date of 21st Nov 2025.
Original publication: 2025-11-23
Effect of the New Labour Laws on Your Take-Home Salary
From 21 November 2025, the new labour codes redefine how basic salary and allowances are structured – directly influencing your in-hand pay and long-term social security.
Effective Date: 21 November 2025 | Basic Salary ≥ 50% of CTC
- ➤ Basic pay must now form at least 50% of total CTC.
- ➤ Take-home salary may reduce as PF, gratuity and other statutory contributions increase.
- ➤ In the long run, retirement savings grow due to higher social security contributions.
With 20+ years in payroll, Karma Global helps organisations and employees navigate this transition smoothly.
The government has notified new labour laws on 21 November 2025, requiring all establishments in India to ensure that basic salary is at least 50% of the total cost-to-company (CTC). This requires employers to rethink how pay packets are structured going forward from the effective date.
As a consequence, take-home pay for employees could reduce over time, as contributions to retirement and social security – such as Provident Fund and gratuity – are expected to increase.
The government has consolidated 29 central labour laws into four comprehensive Labour Codes: Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), and the Occupational Safety, Health and Working Conditions (OSHWC) Code (2020).
Effective 21 November 2025, these Codes aim to simplify regulatory compliance, strengthen worker protection, and modernise India’s labour framework in line with contemporary economic realities.
The proverb “what goes up must come down” aptly reflects the balancing act employers must now perform.
- ➤ Industries operating on thin margins are likely to reduce allowances to offset the higher cost of statutory contributions.
- ➤ Previously, many establishments inflated allowances up to ~75%, leaving only around 25% as basic wages.
- ➤ With the new wage definition, Basic Pay + DA + Retaining Allowance must now be at least 50% of total CTC.
- ➤ The remaining half of the CTC can accommodate other allowances including HRA and conveyance.
Below is an example of how the salary structure for a ₹50,000 monthly CTC could change under the new rules:
- ➤ Guarantees timely and accurate salary processing.
- ➤ Minimises the risk of legal penalties and compliance issues.
- ➤ Strengthens employee trust and satisfaction through transparency.
- ➤ Supports consistent business growth and operational continuity.
- ✔ EPF & ESIC Registration: Assisting in obtaining required EPF and ESI registration numbers.
- ✔ Payroll Processing: Managing payroll end-to-end, including tax deductions and salary disbursements.
- ✔ Compliance Filings: Preparation and submission of all mandatory payroll-related returns and documents.
- ✔ Employee Benefits Administration: Managing Provident Fund, ESI, and compensation claims for employees.
- ✔ Payment & Withdrawal Management: Tracking contributions and settlements as per statutory norms.
- ✔ Regulatory Updates: Keeping payroll processes aligned with the latest legal and statutory requirements.