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

| |

On April 1, 2023, the revised New Labour Codes will become effective. This will impact the financial obligations of businesses and the net income of workers to a significant extent.

Let’s understand the impact and latest updates of New Labour Codes.

EPFO oversees EPF program with proposed contribution rate hike

The Employees’ Provident Fund Organization (EPFO) supervises the retirement benefit program known as the Employees’ Provident Fund (EPF). EPF collects contributions from both employees and employers.

The government has proposed an increase in the EPF contribution rate from 12% to 15%.

Implications of New EPF Contribution Rate on Employee and Employer Finances

  • The new EPF contribution rate will lead to lower take-home pay for employees and increased financial obligations for employers.
  • This change is expected to have a significant impact on small businesses already struggling due to the economic downturn.
  • While the revised contribution rate is aimed at improving social security benefits for workers. But, it may initially result in a decrease in disposable income.
  • However, it is worth noting that the increased contribution is eligible for tax benefits. So, it can provide long-term financial security for employees.

Impact of Increased Employer Contributions on Employee Salaries under New Labour Codes

The new labour codes have led to a decrease in take-home salaries for employees. Because, the increase in the employer’s contribution to the Provident Fund (PF) from 12% to 15% of an employee’s salary.

Additionally, there is an increase in contribution to the Employees’ Pension Scheme (EPS) from 8.33% to 10%.  It has further contributed to the reduction in take-home salaries.

Cons of New Labour Codes

  • Insecurity in terms of employment: The new labour codes will increase the liability of employers in terms of provident funds. It can lead to job loss and create an environment of insecurity for employees.
  • Worse work-life balance: The increase in PF liability may force employers to reduce the number of employees. It may also lead to an increase in working hours, leading to a worse work-life balance.
  • Lower take-home salary: The increase in PF liability may result in a lower take-home salary. Because, employers may reduce salaries or benefits to meet the increased liabilities.
  • Higher costs of living: The decrease in salary or benefits can lead to a decrease in purchasing power. As a result, higher costs of living for employees.
  • Increased PF liability: The new labour codes will require employers to pay higher rates to the PF body. Consequently, it can add to their financial burden and result in serious consequences.


The New Labour Codes have been revised, and will be effective from April 1, 2023.

These codes propose an increase in the EPF contribution rate from 12% to 15%.

This will have an impact on take-home pay for employees, as well as financial obligations for employers.

While aimed at improving social security benefits, it may lead to lower disposable income.

The increase in employer contributions to PF and EPS may lead to decreased take-home salaries.

This could also mean a worsened work-life balance and higher costs of living for employees.

These changes may increase employer liability, leading to job loss and insecurity for employees.

Careful consideration of the implications and appropriate action to minimise negative consequences is important for businesses and workers.

Difference between GPF, EPF & PPF

In case, you need any kind of direction connected with the PF Registration, please feel free to communicate with our business advisors at 8881-069-069.

Download E-Startup Mobile App and never miss the newest updates associating with your business.

Take a call from Expert


MSME Relaxation & Benefits in Budget 2023

New Tax Calculator | Old vs New Regime Comparison


Leave a Comment