Take-home salaries of employees in India may reduce from 2021 as a result of the restructuring of pay packages by companies after the Union government notifies draft rules under the new wage rule.

The new compensation rules are likely to be effective from April next year under the Code on Wages, 2019, a report stated.

Financial experts have hailed this move of the government saying that it will offer better social security and retirement benefits to employees.

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Under the new rules, the allowance component cannot exceed 50 per cent of the total salary and the basic salary of an employee will be 50 per cent.

With employers increasing the basic pay component of salaries, there will be a proportional rise in gratuity payments and employees’ contribution to the provident fund.

Most private companies in the country keep the non-allowance part of the total compensation of their employees less than 50 per cent, preferring to keep the allowance higher.

The salary costs incurred by companies may rise by 10-12 per cent as they will invest more towards employees’ PF and gratuity under the new wage rules.

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