New Wage Code

The Modi govt is likely to implement 4 new labour codes soon. These will subsume 29 central labour regulations, aim to consolidate and simplify complex labour legislations. The centre had finalized the draft rules in Feb, 2021 and now around 23 states have pre-published draft rules on these laws. 

WHEN WILL IT BE IMPLEMENTED

Media reports have quoted govt officials as saying that since labour is a state subject too, the centre wants states to implement these as well in one go. Plus corporates are hoping for time to transition to these new codes. 

WHAT WILL CHANGE

While the code brings about changes in leave, hours of work, we focus on how it will change the salary structure. 

1. HIGHER RETIREMENT BENEFITS

The wage code requires the basic salary component to be at least 50% of the total CTC. Usually, this is at 30-40% because many components of the salary like PF contribution, Gratuity, HRA are dependent on this basic salary figure. If basic salary goes up, the employer has to contribute more to provident fund and gratuity. Further, those working for smaller periods on fixed term contracts will also be eligible for gratuity. Second, the labour codes read together lay down that gratuity must be calculated on ‘deemed’ basic salary which cannot be less than 50% of your total pay packet.

2. HIGHER TAXES

The allowances, apart from basic salary, bonus and some part of HRA, is non-taxable under the current rules. With the rise in the basic, taxes are also bound to go up. The non-taxable part will shrink significantly with the new changes. It will range from 20-25 percent, from earlier 50 or more percent.

3. LOWER TAKE HOME SALARY

As taxes increase and contribution to retirement benefits increase, the amount you get to take home reduces.