India has modernized its labor governance with the implementation of four new labor codes, replacing 29 central labor laws. Effective from 21 November 2025, these reforms aim to streamline employee benefits and improve retirement security. While employees’ take-home salary may decrease under the new rules, experts say the changes could significantly boost retirement savings over the long term.

According to Sujit Bangar, founder of TaxBuddy.com, employees could accumulate an additional ₹2.13 crore over 30–35 years if they leverage the new system properly. Here’s a detailed breakdown of how the new labor code affects salaries and retirement funds.

Key Differences Between Old and New Labor Rules

Under the previous system, basic salary was typically 30–35% of the CTC, with the rest allocated to allowances. Since Provident Fund (PF) and National Pension System (NPS) contributions are calculated based on basic salary, their long-term impact remained limited.

The new labor code mandates a minimum of 50% of CTC as basic salary, automatically increasing PF and NPS contributions. While allowances reduce slightly, the focus is on enhancing retirement security.

How Employees Can Boost Retirement Funds

Sujit Bangar provides an illustrative example:

• Consider a 30-year-old employee with ₹12 lakh annual CTC.

Under the old system:

• PF contribution (employee + employer): ₹7,200/month

• NPS contribution: ₹4,200/month

Under the new labor code:

• PF contribution rises to ₹12,000/month (+₹4,800 extra)

• NPS contribution increases to ₹7,000/month

This automatic increase in PF and NPS contributions over 30–35 years of compounding can generate a substantial additional corpus.

Estimated Impact on Retirement Savings

Why Employees Often Miss the Bigger Picture

Bangar explains that many employees focus on short-term take-home salary rather than long-term wealth creation.

• Mutual Fund SIPs are often stopped midway (3–5 years).

• Fixed Deposit interest may drop, reducing long-term returns.

• Voluntary savings depend entirely on personal discipline.

In contrast, PF and NPS contributions are automatic, mandatory, and deduction-based, compounding consistently over decades. This makes the new labor code a powerful tool for lifetime wealth creation, even if take-home pay is slightly lower in the short term.

The Takeaway

1. Short-term reduction in take-home salary is offset by significant long-term gains in retirement savings.

2. Compounding effect in PF and NPS can create millions of rupees over 30–35 years.

3. Employees should view the new labor code as an opportunity to build financial security rather than a setback.

4. Automated retirement contributions provide disciplined, worry-free long-term investment growth.

Conclusion
While the new labor code may initially reduce employees’ in-hand salary, the automatic increase in PF and NPS contributions can lead to substantial wealth creation, potentially adding over ₹2 crore to retirement funds. By embracing the system and allowing compounding to work its magic, employees can secure financial independence and long-term security.