- For increasing the gratuity and the contribution to the provident fund, A new act was passed by the parliament called Code of Wages/ Wage Code in which the take-home salary of maximum private firm employees is likely to come down. It is also announced that this new wage rules will come into effect from April 1, 2021.
- The Code on Wages Bill, 2019 seeks to amend and consolidate laws relating to wages, bonus and matters connected therewith. It was passed in Rajya Sabha on August 2, 2019. Lok Sabha passed the bill on July 30, 2019
- This undertaking is set by the draft rules of the central government because of the reconstruction in the salary packages of the employees. These packages are required to be aligned with the new wage rule which means the total cost to company (CTC) cannot exceed 50 per cent of the total compensation reverting the basic salary to 50% of the total pay.
- Retirement contributions will also mean lower take-home salary for employees but the retirement corpus of employees will grow.
- At present, several private companies prefer to set the non-allowance part of the total compensation less than 50 per cent and the allowance portion higher. However, this will change as soon as the new wage rules come to effect. The rules are expected to impact private sector employees’ salaries because they usually get higher allowances.
- The inclusion of four labour laws of the Code Wage is the following:
- Minimum Wages Act
- Payment of Wages Act
- Payment of Bonus Act and Equal Remuneration Act
- Tramping of the employees can been seen further in future as they get on to their basic pay so as to meet the 50% basic pay as this take-home of every employee shall be deducted for providing better social security and retirement benefits.
- The setting of non-allowances part of total compensation within the private firm sis still less than 50% of an employee’s CTC for keeping a higher portion for allowances.
- Still confused about the Act? Check on the step-by-step explanations detailed down this page. You can get a brief learning about the system and structure.
- The re-structuralization of the wages should be made by the Private Sector.
- The allowance cannot exceed 50% of the total salary of the employees working in these private sectors. Further, the companies are required to increase the basic salary component that will get distributed as a provident fund and the rise in gratuity.
- The new wage rule may result in a lower take-home salary for all the employees.
- As per the new wage Act, at least 50% of the gross remuneration of employees shall structuralise the calculation of PF and gratuity.
- Under the new wage act, private companies wont be allowed to keep the allowances high and the basic salary low.
What had happened with the Wage Code in the year 2019?
- An attempt was made by the new wage code in 2019 to regulate and implement the wages with an ease.
- As the 2019 Wage Code took effect, about 50% of the gross remuneration of the employees formed the basis to calculate benefits such as gratuity, retrenchment compensation, provident fund, etc where the total basic salary including several fixed allowances are below the margin of 50% of the total pay. This is going to get set up from the month of April.
What changes have been seen in 2021 as compared to 2019 Wage Code?
- Out of 44 central government laws, 29 were the merges those resulted as the part of the four-labour code among with is the new wage code.
- The existing acts that governed the employee’s provident fund (EPF) and gratuity will now be the part of the Code of Social Security.
- The provident fund in 2021 shall depend up on the regulations instructed on the Wage Code, 2019.
- Many private companies try to keep the basic pay of their employees low substantially increasing the allowance. However, the major change that can be seen in the new Wage Code is that these companies have to now restructure the salary in such a way that the employee’s basic pay remains high so as to meet the new requirements. If the salary exclusions are more than the total salary then the excess over the 50% must be inclusive within the wages that is basically based on the structure in which the EPF will be calculated.
- The revision will result in reduction in take-home pay as provident fund (PF) contribution of most of the employees will go up. PF is calculated as a percentage of basic salary.
Effects of new Wage Code upon Private sector:
- In addition to restructuring the pay packages, it will have significant cost repercussions for firms such as there will be an increase in the PF and gratuity, to which the workforce cost shall also increase. In addition, there will be a one-time cost increase for employers toaudit their current base of employee pay structure and align with the new system and rising compliance cost burden.
- Firms will also see an impact is the increased gratuity cost. Currently, it is calculated on 15 days of basic pay and dearness allowance. Now, with the new calculation, gratuity will have to include the other allowances of wages such as travel, special allowance
How will the employees benefit from this?
- With more sum deducted towards social security kitty as well as post-retirement gratuity, the scheme will prove beneficial to employees in the long run. However, while the new wage code is set for an April rollout, clarity is yet to emerge on many provisions