Top News

Many salaried employees across India are facing an unexpected surprise during this year’s appraisal season. While companies are offering salary hikes on paper, the actual increase reflected in employees’ bank accounts is turning out to be much smaller than expected.

For example, several workers who received an 8 percent salary increment are reportedly seeing only a 4–5 percent rise in their monthly take-home pay. The reason behind this difference lies in the changing salary structure under the country’s new labour code framework.

Experts say the revised rules are gradually pushing companies to increase the basic salary component in employee compensation structures. While this strengthens retirement benefits like Provident Fund (PF) and gratuity, it also increases monthly deductions, reducing the amount employees receive in hand every month.

Why Employees Are Seeing Lower Take-Home Salaries

Under the new wage-related labour code guidelines, at least 50 percent of an employee’s total Cost to Company (CTC) must be treated as basic salary.

Earlier, many companies kept the basic salary portion relatively low and distributed a larger part of compensation through allowances and reimbursements. This helped employees receive higher take-home pay because PF and gratuity deductions were lower.

However, the revised structure changes this significantly.

Since PF, gratuity, and several other statutory benefits are calculated based on basic salary, an increase in the basic component automatically raises these deductions.

As a result, even after salary hikes, employees may notice that a substantial portion of the increment is getting diverted into retirement savings rather than immediate monthly income.

Understanding the Impact Through an Example

Consider the example of an employee named Rahul.

Earlier:

• Total monthly CTC: ₹50,000
• Basic salary: ₹18,000
• PF deduction: around ₹2,160

Under the revised structure:

• Basic salary increased to ₹25,000
• PF deduction increased to nearly ₹3,000

Although Rahul’s overall salary package has increased, his monthly in-hand salary may actually rise only marginally because of the higher PF contribution.

This is one of the main reasons many employees are feeling disappointed after appraisal announcements.

Why Even a 10% Salary Hike May Feel Smaller

The same effect becomes more noticeable at higher salary levels.

Suppose an employee named Pooja was earning ₹60,000 per month and received a 10 percent appraisal, taking her salary to ₹66,000.

At first glance, she may expect an additional ₹6,000 in monthly income. However, after accounting for:

• Higher PF contribution
• Increased gratuity allocation
• Other revised deductions

the actual increase in her bank account may only be around ₹3,500 to ₹4,000.

This is creating confusion among many employees who compare their revised CTC with their actual monthly credited salary.

Why Companies Earlier Preferred Lower Basic Salary Structures

For years, many private companies structured salaries in a way that maximized take-home income.

A large portion of compensation was often distributed through:

• Special allowances
• Travel reimbursements
• Performance incentives
• Flexible benefit plans

This helped companies reduce long-term liabilities related to gratuity and PF contributions while giving employees higher monthly cash flow.

The new labour framework is gradually reducing the scope for such aggressive salary structuring practices.

Bigger PF and Gratuity Could Benefit Employees Later

Although employees may receive lower take-home pay in the short term, financial planners say the revised structure has long-term advantages.

Higher basic salary means:

• Increased Provident Fund savings
• Higher gratuity accumulation
• Better retirement corpus
• Stronger long-term financial security

For employees who continue in long-term employment, these additional contributions can significantly improve retirement savings over time.

Experts say the new structure is designed to strengthen social security benefits for workers instead of focusing only on immediate cash flow.

Companies Trying to Offset the Impact

To reduce employee dissatisfaction, some companies are introducing tax-saving components and flexible allowances within compensation packages.

These may include:

• Meal coupons
• Education allowance
• Hostel allowance
• Fuel reimbursement
• Flexible benefit plans

Such benefits can help reduce tax burden and partially offset the reduction in take-home salary.

Large corporations have already started restructuring employee compensation models, while many smaller firms are still evaluating how and when to fully implement the revised framework.

Employees Need to Focus on Salary Structure, Not Just Hike Percentage

Financial experts believe employees should now pay closer attention to salary structure instead of looking only at the percentage increase announced during appraisals.

Key factors employees should review include:

• Basic salary percentage
• PF contribution
• Gratuity allocation
• Taxable allowances
• Net take-home pay
• Retirement benefits

Understanding these components has become increasingly important because a higher CTC no longer automatically guarantees proportionately higher monthly income.

Labour Code Changes Could Reshape Salary Planning

As more companies align their payroll systems with the new labour code framework, salary structures across the corporate sector are expected to change gradually.

Experts believe the transition may initially disappoint employees expecting immediate cash benefits from salary hikes. However, the long-term objective is to improve retirement security and formalize compensation practices across industries.

In the coming months, more organizations are likely to revise employee salary structures, making it essential for salaried professionals to understand how compensation components directly affect both present income and future savings.

---