The appraisal season is in its last leg, with many now grumbling, cheering, or protesting the increments they’ve received. In November 2025, the government solved a major bureaucratic hurdle facing employers- the complex web of compliance that included 29 colonial-era labour laws and other state laws complicating matters. In the absence of a uniform definition of the basic pay component, organizations started to compress it in the salary structures, often to as low as 20-30% of the total Cost to Company (CTC), while inflating the allowances and reimbursements given.
All of that changed in November 2025, when the central government implemented a comprehensive labor code that changed the way wages and salaries were calculated, to say the least. The biggest change here was the decision to standardize wages across all categories, with a 50% cap on allowances introduced. For your performance appraisal, this meant a lower take-home salary with a higher Provident Fund contribution.
Encouraging YODO, discouraging YOLO
In line with the times, this structural shift is aimed at aligning your payslips to YODO (You Only Die Once), emphasizing long-term planning and job security. With job security tied to performance and market conditions, the government is aiming to align your payslips to them, discouraging the YOLO (You Only Live Once) mindset that justifies unaffordable indulgent purchases.
For the government, the long-awaited labour reforms offered them an opportunity to address another issue that could affect us in the long run- social and financial security. By changing the calculations for Provident Fund calculations, you may get a slightly lower in-hand salary, but the balance is now set aside for emergencies, job losses, life events, and your retirement.
A forward-thinking move for Gen Z
India is currently witnessing a demographic shift, similar to that of the developing world. In most of the country, the fertility rate has fallen below the replacement level of 2.1 children
per woman, as Western concepts of individuality have taken over traditional family systems.
Along with that, employment in the private sector has become performance and demand-driven, with the risk of layoffs, retrenchment, or termination being ever-present. The compulsory Provident Fund contributions are aimed at offering a financial buffer that will offer a crucial safety net in case of job losses or retirement.
Social Security: A growing, global challenge
The government aims to strengthen India’s social security framework, as the increase in Provident Fund contributions and the high interest rates provided could help boost post-retirement social security.
Developing and aging societies like Germany, Japan, and the US have highly reliable social security measures, with compulsory contributions from both employers and employees offering workers of all classes a consistent pension and income to deal with emergencies. In most countries, about 15-20% of the CTC is used for pension contributions on average. Though they may not necessarily be enough, they have been working well to provide stability to those who need it.
Global standing in social security
According to the Mercer CFA Institute Global Pension Index 2025, India has a fairly low score of 43.8 with a Grade D, as its pension system shows “some desirable features but major weaknesses that need urgent attention”.
India’s pension system ranked 52nd out of 52 countries in the 2025 Mercer CFA Institute Global Pension Index, scoring 43.8, far below the global average of 64.5.
Key reasons for low ranking:
Limited pension coverage for unorganized sector workers
No guaranteed minimum… pic.twitter.com/9xCFDuM9gN
— Vijaya Sharma (@vijayaksharma) October 23, 2025
The main reason for the low score is its limited accessibility and coverage, as the EPFO, the body managing your Provident Fund contributions, has just 5-6 crore active contributing members currently, just under 10% of India’s total 61 crore workforce.
Shooting two birds with one stone
Through the Code on Social Security, 2020, the government aims to boost social security coverage through the Provident Fund and the ESIC. This will also include gig workers, which now number almost 1.2 crore, thanks to the explosion of online service platforms. Through this framework, the aggregators who hire them on contract will now contribute about 1-2% of their turnover, capped at 5% of the total amount paid to such workers, into a dedicated social security fund. This will help them fund sickness, old age or injury.
With the government now working to conduct the long-delayed census, the implementation of this code is expected to help them understand the gravity of the situation and better prepare for the next set of policies based on the latest data to come later.
<p>The post Explained: The real reason behind the hike in PF, gratuity in your payslip first appeared on Hello Entrepreneurs.</p>
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