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Labour Law

New Labour Codes Increase PF Liability and Reduce Take-Home Salaries

New labour codes have become a cause of concern for employees as they tend to increase the Provident Fund (PF) liability and reduce take-home salaries.

Overview

The updated New Labour Codes will take effect on 1 April 2023. These codes will significantly affect both the liabilities of businesses and the take-home pay of employees.  The Employees’ Provident Fund Organisation (EPFO) oversees the Employees’ Provident Fund (EPF), a retirement benefit programme (EPFO). In accordance with this plan, the fund receives contributions from the employee’s wage as well as the company. Recently, the government suggested raising the EPF contribution rate from 12% to 15%. 

Employees will earn less after taxes as a result of this. Additionally, employers will be forced to contribute more money to the EPF. Small firms, which are already having a difficult time adjusting to the economic slump, will be significantly impacted by this shift. These changes are aimed at providing better social security benefits to employees, but it may also result in a temporary reduction of disposable income for employees. It’s important to note that the increased contribution to the EPF is eligible for tax benefits and would result in long-term financial security for employees.

Reasons for Reduced Take-Home Salaries with New Labour Codes 

The main reason for the reduction in take-home salaries with the new labour codes is the increase in the employer’s contribution to the Provident Fund (PF). Under the new rules, the employer’s contribution has gone up from 12% to 15% of an employee’s salary, which results in a reduction of the employee’s take-home salary by the same amount. The increased contribution to the Employees’ Pension Scheme (EPS) from 8.33% to 10% has also contributed to the reduction in take-home salaries.

These changes have been implemented to provide better social security benefits to employees and ensure their financial stability in the long term. However, the short-term impact of the reduced take-home salaries may affect the employees’ disposable income. It’s worth noting that the increased contribution to the EPF is eligible for tax benefits under the Income Tax Act, of 1961, which can offset the reduction in take-home salaries to some extent.

Disadvantages of New Labour Codes Increasing PF Liability

  • Insecurity in terms of employment

One of the main disadvantages of the new labour codes is that it will increase the liability of the employers in terms of provident funds (PF). This increased liability will affect the employees since it will reduce the employers’ spending power and that can lead to job loss because of a lack of financial resources. Any such move will only lead to an environment of insecurity as the employees will be afraid of being subjected to termination or layoffs in order to manage the liabilities. Overall, it can be concluded that the new codes will create an atmosphere of insecurity because employers may be reluctant to make new hires and can even terminate existing ones.

  • Worse work-life balance

Another disadvantage of the new labour codes is that they may lead to a worse work-life balance. The new regime will require employers to pay more towards the provident fund as compared to what they have been paying before. This will force them to cut down on their spending or to look for other ways to save money. One such way can be to increase the working hours or to reduce the number of employees in a team. This can lead to a worse work-life balance on the part of the employees. 

  •  New Labour Codes-Lower Take-home Salary

Along with a worse work-life balance, the increase in PF liability under the new labour codes may also lead to a lower take-home salary. Since the employers will have to pay more towards the provident fund in order to meet the increased liabilities, they are likely to reduce the salary of the employees or may even cut down on some of their benefits. 

  • Higher Costs of Living

Along with a worse work-life balance and a lower take-home salary, the increase in the PF liability under the new labour codes can also lead to higher costs of living. As mentioned earlier, the employers may reduce some of the benefits that the employees receive and may also reduce the salary in order to meet the increased liabilities. This will lead to lower purchasing power on the part of the employees as they will have to manage their daily needs with less money.

  •  New Labour Codes-Increased PF Liability

Lastly, the increase in the PF liability under the new labour codes is one of its major disadvantages. The new codes will require employers to pay higher rates to the PF body in order to meet the increased liabilities. This can further add to their financial burden and can result in serious consequences for the employers. Moreover, the increased PF liabilities will also increase the burden on the employers as they have to manage the PF body and also comply with the government.

Conclusion

In India, new labour laws have increased employers’ provident fund (PF) liabilities and decreased employees’ take-home pay. Employers are now required to keep additional cash even as disposable earnings decline, which has significantly increased their financial difficulties. The government must offer tax breaks and subsidies, as well as enhanced compliance and enforcement of the new laws, to lessen the cost on firms and safeguard employees. The government may ensure that employers are not overworked and that employees receive the required financial help and social security benefits by taking such measures. 

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