Staring next financial year, the in-hand component of salaries of employees may reduce as companies would be required to restructure pay packages. According to government’s new wage rule, the new compensation rules, which are part of the Code on Wages 2019, are likely to become effective from the next financial year starting in April.

The new rules states that the allowance component cannot exceed 50% of the total salary or compensation. This means employers will have to increase the basic pay component of salaries and it will result in a proportional rise in gratuity payments and employees’ contribution to the provident fund (PF).

At present, most private companies set the non-allowance part at less than 50% and the allowance portion is higher. The new changes soon come to effect and the rules will impact private sector employees.

According to the new rules, companies will have to hike the basic pay of employees. Experts believe that the new measures would help to provide better social security and retirement benefits.