New labour code changes: How they can boost your retirement savings explained

India’s new labour codes are expected to bring one of the most substantial transformations in wage structuring for private-sector employees in decades.

The revised definition of "wages," which sets all allowances at 50% of total income, is at the centre of these modifications. This implies your basic income must represent at least half of your total pay, a big departure from the former structure, where businesses routinely kept basic pay low and padded the rest with several allowances to reduce required contributions.

With the fundamental component rising, contributions from both the company and employee will increase automatically, boosting long-term financial security.

Under the new structure, employees may initially notice a reduced take-home salary, but the long-term gains are considerable: a larger EPF corpus, higher gratuity, increased pension benefits, and lower taxable income due to higher employer contributions that are not counted as salary for tax purposes.

Overall, the new labour code shifts India’s workforce toward higher compulsory savings, ensuring stronger retirement foundations for millions.

The Government has consolidated 29 labour laws into four comprehensive Labour Codes. The four Labour Codes include the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020.