Salary structure: Higher provident fund outgo may blunt salary hikes | India Business News

NEW DELHI: Salary hikes this year may not translate into higher cash-in-hand for employees if organisations choose to pay more in provident fund (PF) contributions due to the new definition of wages proposed by the government, showed a study.
While 88% of companies said they intend to increase pay in 2021, up from 75% last year, the latest Salary Increase Survey in India by Aon, a global professional services firm, projected a hike of 7.7% compared to 6.1% last year.

“We expect the increment dynamics for 2021 to play out over a longer period of time given the uncertainty and potential impact of forthcoming changes,” said Nitin Sethi, partner and CEO of Aon’s performance and rewards business in India.

“The proposed definition of wages under the new labour codes could lead to additional compensation budgeting in the form of higher provisioning for benefit plans like gratuity, leave encashment and PF. We expect organisations to review their compensation budgets in the second half of the year once the exact financial impact of the labour codes is known,” he said.

Sethi, however, said the impact of the codes could be minimal, as most of the large companies in India pay 35-40% of the CTC as basic pay.

“In those companies, such as old-world engineering companies, where the basic pay is around 25% of the total, the impact could be significantly higher,” Sethi added. But according to Aon, India continues to project the highest salary increases among BRIC nations.

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