Kool Kanya News / Speaking Out

Your Take-Home Salary Might Reduce From Next Year – Understand Why

. 3 min read . Written by Sanjana Bhagwat
Your Take-Home Salary Might Reduce From Next Year – Understand Why

According to a new wage rule, under the Code of Wages passed by the Parliament in 2019, your take-home salary might come down starting the next financial year. The proposed rule if implemented, will come into effect from April 1, 2021.

The New Wage Rule Wants To Increase Basic Salary, Which Will Decrease In-Hand Salary

“Your salary structure has many different components to it, including such things as basic salary, allowances, gratuity, etc.,” says Remisa Dhar, Human Resources professional at Kool Kanya. According to the draft rule, she explains, the allowances component of the employee’s gross pay in private firms cannot exceed 50 percent of their compensation. The idea is that the basic salary component must be 50 percent of the total compensation.

A certain percentage of an employee’s basic salary goes into their employee provident fund. With an increase in the percentage of their basic salary, there will be an increase in the money going into such things as provident fund (PF), and a decrease in the employee’s in-hand salary.

Currently, most private firms prefer to keep a higher portion of an employee’s cost to company (CTC) for allowances, and set the non-allowance portion as less than 50 percent.

But if the new rule comes into effect, the non-allowance portion of basic salary will have to be kept at 50 percent, so as to consequently increase gratuity and PF contributions, and employee’s take-home salaries will decrease.

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“This is a huge hit for the companies as well, since they contribute a certain amount to the PF and gratuity, and with the new rule, this will also go up,” says Remisa.

While readjusting the employee’s CTC structure, a possibility is that companies will decide to decrease employees’ CTC as well, in order to reduce the cost borne by them.

The new rule is being set with the intention to ensure better retirement benefits and social security to employees in the long-run, even when employees will have reduced compensation in hand in the short-run. However, as Remisa points out, everyone’s budgeting needs are different, and the reduced in-hand salary may have a significant impact on people’s ability to budget for daily needs.

So, ladies, take a good look at your salary structure, talk to the concerned authorities in your organisation about how your company is likely to execute the possible restructuring, be prepared for the possibility of having to rearrange your daily budgets – and take charge of your finances!

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