Abhishek Verma Explains the New Salary Reality

Abhishek Verma recently shared something that caught my attention: "Your Salary is Changing… But No One is Explaining This Properly!" He followed it with a scenario many employees are quietly wrestling with: "Why is my salary increasing… but my take-home is going DOWN?"

That question sounds like a payroll error at first. In reality, it is often the result of a structural shift in how salaries are built under India’s Labour Codes, especially the push toward a higher Basic Salary component. Abhishek’s post is a helpful reminder that a bigger CTC number does not automatically mean more money in your bank account each month.

In this blog, I want to expand on Abhishek Verma’s core point: the new rules can reduce short-term take-home pay while improving long-term retirement and exit benefits. Whether you are an employee trying to decode payslips, or an HR/finance leader redesigning compensation, understanding the mechanics is no longer optional.

The quick refresher: CTC vs take-home

CTC (Cost to Company) is the employer’s total annual cost of employing you. It typically includes:

• Fixed monthly components (Basic, HRA, allowances)
• Employer contributions (often employer PF)
• Annual or conditional payouts (bonus, LTA, reimbursements)

Take-home (in-hand) is what you receive after deductions such as:

• Employee PF contribution
• Professional tax (where applicable)
• Income tax (TDS)
• Other deductions (ESI, loan recoveries, etc.)

So when Abhishek says your "salary is increasing" but take-home is down, the hidden story is usually: CTC stayed similar or rose slightly, but the mix changed and deductions rose.

What Abhishek Verma highlighted: the 50% Basic rule

Abhishek’s Rule #1 is the big one:

"Rule #1: 50% Basic Salary Mandatory. Earlier: Basic = 30%-40% of CTC. Now: Minimum 50% of CTC."

The Labour Codes aim to standardize what counts as "wages" (often interpreted as Basic plus certain fixed components) and prevent very low Basic Salary structures that were used to minimize statutory contributions.

Why does a higher Basic change everything?

Because many statutory benefits and deductions are calculated as a percentage of Basic (or wages). When Basic increases, anything linked to it also increases. That directly impacts both:

• Monthly deductions (reducing take-home)
• Long-term benefit accruals (increasing retirement and exit benefits)

PF is the most visible impact on your take-home

Abhishek’s Rule #2 makes the math concrete:

"PF = 12% of Basic Salary"

He gave an example:

• Before: Basic ₹35,000 -> PF = ₹4,200
• Now: Basic ₹50,000 -> PF = ₹6,000

That is an increase of ₹1,800 per month in the employee PF deduction alone. Multiply that by 12 months and you are at ₹21,600 less cash in-hand annually (before considering any tax effects).

Two PF amounts often exist (employee and employer)

Many employees only notice the employee PF deduction because it reduces take-home. But in many structures, the employer also contributes to PF. Depending on how the CTC is defined at your company:

• If employer PF is included in CTC, shifting to higher Basic can reallocate more of your CTC into employer PF (which you do not receive as cash).
• If employer PF is paid over and above CTC (less common), the company’s cost rises when Basic rises.

Either way, Basic moving upward makes PF more meaningful, and the cash-vs-savings tradeoff becomes real.

Why take-home drops even if the headline number rises

Abhishek’s Rule #3 is the lived experience:

"Take-Home Salary ↓. More PF deduction. Less allowance flexibility. Result: In-hand salary goes down."

The "less allowance flexibility" part matters. Earlier, a larger portion of pay could sit in allowances, reimbursements, or components with different tax and contribution treatments. With a higher Basic requirement, there is less room to "shape" the salary for maximum monthly in-hand.

Common outcomes you might see on a revised structure:

• Basic increases
• HRA may increase (often tied to Basic), which can be good if you pay rent and claim HRA exemption
• Certain allowances may decrease to keep total CTC similar
• PF deduction increases immediately

So the monthly salary credit can fall even though:

• Your total compensation statement looks fine
• Your retirement savings are improving

The hidden benefit: gratuity gets stronger

This is the part Abhishek says people ignore:

"Gratuity = Based on Basic Salary. Higher Basic = Higher Gratuity. Better long-term wealth."

Gratuity is typically calculated using a formula based on last drawn Basic (and sometimes DA) and years of service, subject to eligibility conditions and legal limits. If Basic is higher over time, gratuity liability and eventual payout trend higher too.

Why this matters for employees

If you stay with an employer long enough to qualify, gratuity becomes a meaningful wealth component. It is not monthly cash, but it is real money when you exit.

Why this matters for employers

Higher Basic increases the organization’s long-term gratuity liability. HR and finance teams need to plan for this through proper provisioning and compliance, not just payroll adjustments.

The tradeoff Abhishek summarized: spend today vs secure tomorrow

Abhishek captured the change in one clean contrast:

"Short Term: Less cash in hand. Long Term: More PF + Gratuity + Security."

I agree with the framing, with one nuance: whether it is "good" or "bad" depends heavily on the employee’s situation.

When the change feels good

• Early and mid-career employees building retirement discipline
• People who struggle to save consistently on their own
• Employees who value formal, protected benefits

When the change feels painful

• Employees with tight monthly cash flows (rent, EMIs, caregiving)
• Households that rely on every rupee of take-home for necessities
• People who prefer investing outside PF for flexibility

In other words, the same payroll change can be financially "healthy" in the long run and still emotionally frustrating in the moment.

Practical checklist for employees

If your payslip changed recently (or will change soon), here is how to evaluate it without panic:

1) Ask for the before-and-after structure

Do not compare only CTC. Compare line items:

• Basic
• HRA
• Special allowance
• PF (employee and employer)
• Gratuity (if shown)

2) Separate deductions from taxes

PF is a deduction but also a savings asset. TDS is tax. They feel similar because both reduce take-home, but they work differently.

3) Re-plan your monthly cash flow

If in-hand reduces by ₹1,000-₹3,000 per month, update your budget proactively rather than letting it create debt.

4) Treat PF as part of your long-term portfolio

PF may not be your only investment, but it is a core pillar. Think of the higher deduction as an automatic increase in long-term allocation.

Guidance for HR and finance teams (what Abhishek urged)

Abhishek’s closing advice was direct: restructure smartly, ensure compliance, and educate employees.

That "educate employees" point is critical because confusion erodes trust. A few actions that work well in practice:

• Publish a one-page explainer: "What changed, what did not, and why"
• Run a short payroll webinar with examples (including the ₹35,000 to ₹50,000 Basic PF jump)
• Provide personalized illustrations for common CTC bands
• Avoid jargon like "wage definition" in employee-facing communication. Translate it into payslip impact.

And if your organization is still using an old structure that will not align with the new wage norms, you risk a rushed, reactive change later. Better to redesign intentionally.

So is it good or bad?

If I answer in the spirit of Abhishek Verma’s post: it is a shift in priorities, not a simple win or loss.

• It can reduce short-term spending power.
• It can increase long-term security through higher PF accumulation and a stronger gratuity base.

The best outcome is when employees understand the "why" and can plan around the "now." That is what Abhishek’s viral post successfully prompted people to discuss.

This blog post expands on a viral LinkedIn post by Abhishek Verma. View the original LinkedIn post →

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