As per the new compensation rules, allowances can not be more than 50% of the total compensation. After the implementation of the new wage code, companies will have to increase the basic pay of employees to meet the new requirement.

From April 2021, take-home salary of private sector employees is set to fall as companies need to restructure pay packages of employees as per the new wage rules. The government has notified the draft rules under the Code on Wages 2019. As per the new compensation rules, allowances can not be more than 50% of the total compensation. It means, that the basic pay (in government jobs, basic pay plus dearness allowance) will have to be 50% or more of total pay from April.

To understand this let us consider an example. Suppose your gross salary is Rs 1 lakh at present and your basic salary is Rs 20,000. Your total PF contribution (including employer's contribution) is Rs 4,800. So your pre-tax take home salary comes to Rs 95,200 (assuming no other deduction is their). Once the new code becomes applicable your basic pay needs to be revised to Rs 50,000. So your monthly PF contribution (including employer's contribution) will increase to Rs 12,000, 150% higher than your existing contribution. Hence your pre-tax take-home salary will fall to Rs 88,000, nearly 8% less than your existing pre-tax take-home salary.