The Ministry of Labor and Employment has finalized the rules under the Four Labor Code. There is a readiness to implement the new labor law from April 1, 2021.

Experts say that companies will have to make changes in their CTC (cost to company) and allowances when the new labor law comes into force. This is because according to the new law, the allowances of an employee cannot exceed 50 percent of the total salary. To comply with this rule, employers will have to increase the basic salary of their employees by 50 per cent. Limiting the allowance to 50 percent of the total salary will also increase the employer’s payment on staff gratuity, which is given to the staff working in a company for more than five years. This will give employees more benefits on retirement than before.

As per the new definition, bonus, pension and PF contributions, conveyance allowance, HRA, overtime and gratuity will have to be excluded from salary. That is, the basic salary will have to be 50 percent or more. It is believed that after the new labor law, there will be a big change in salary structure. This would mean that in-hand pay of employees could be cut. On the other hand, cuts in the name of social security schemes like Provident Fund (PF) will increase.


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