Beginning next fiscal year, private sector employees would have to bear with the cut down in salaries as employers would need to re-adjust their salaries as per the new wage rules.
The new compensation rules as part of the Code on Wages passed by Parliament last year will come into effect from the next fiscal year. And accordingly, allowances shall not be over 50% of the total compensation. So, as specified in the ET report, basic pay will need to be 50% or higher from April next year.
In an ordinary scenario, most companies keep the non-allowance part less than 50 percent and hence why the change in the salary structure is in the offing. And hence now the basic pay shall be revised upwards and hence PF contribution shall increase, likewise take home pay shall fall.
Thus as both gratuity and PF which is calculated based on the basic pay shall go higher. And likewise companies will also need to dole out a higher amount for employers' contribution to both gratuity pay out and PF kitty.
"The new definition will do away with the current practice of structuring salaries with higher allowances to lower social security contributions," the business daily quoted an unnamed senior government official as saying.