New wage code: How you may end up with more funds post-retirement — explained
Premium- New wage code: After implementation of four codes, an employee's basic salary would become at least 50 per cent of its CTC
New wage code 2022: After Union Labour Minister Bhupender Yadav exuding confidence about the four labour codes to soon become a reality, new wage code on wages, social security, industrial relations and occupation safety, health and working conditions is in new again. Once the wage code becomes a reality, an employee's basic salary would become at least 50 per cent of its CTC (cost to company), leading to rise in monthly contribution of PF (Provident Fund) and gratuity. This is expected to fuel basic retirement fund of an employee as average basic salary of an employee is around 20-25 per cent of the net CTC.
Speaking on the new wage code 2022 proposals in regard to basic salary, Kartik Jhaveri, Director — Wealth at Transcend Capital said, "After implementation of the new wage code, an employee's basic salary would become at least 50 per cent of its net CTC. So, in such condition, one's monthly PF and gratuity contribution will go up from current levels as average basic salary of an employee is currently around 20-25 per cent of the monthly CTC. Thus one's PF and gratuity contribution is expected to get at least doubled from current levels."
On how one's retirement fund would go up after implementation of new wage code, SEBI registered tax and investment expert Jitendra Solanki said, "The EPFO rule says that an employee will have to mandatorily contribute 12 per cent of its basic salary. And its employer would also contribute 12 per cent of the basic salary of its employee. As current average basic salary of an employee is expected to double after implementation of the new wage code, one's monthly contribution would also get doubled." He said that higher PF contribution is expected to increase retirement fund of the employee as PF can be withdrawn after retirement.
However, both experts re-iterated that higher retirement fund would come at the cost of take home salary. They said that rise in monthly PF and gratuity contribution would lead to lower take home salary as PF and gratuity contribution is part of an employee's CTC.