New Labor Codes Impact on Salary: Under the new rule, all allowances cannot exceed 50 percent of the total salary structure. That is, the basic salary (basic salary) in the salary will be 50 percent or more. This will increase PF, increase gratuity, but the new labor code affect on in hand salary will decrease.
New Delhi: New Labor Codes Impact on Salary: The Ministry of Labor and Employment Welfare (Ministry of Labor and Employment) has finalized the rules under 4 Labor Codes i.e. Labor Codes. These four codes have been notified after the President’s approval. But to implement them, the rules also need to be notified. If the government applies the new definition of the wedge, the PF contribution will increase. Earlier PF was calculated only on basic salary, DA and other special allowances. Under the new rule, all allowances cannot exceed 50 percent of the salary structure. That is, from April 2021, basic salary (basic salary) will have to be 50 percent or more of the total salary. This new wedge ruleAfter coming, a big change in salary structure will be seen (affect on in hand salary).
What is the current salary structure?
Generally, the compensation structure in all industries in India includes basic salary and allowance. Basic salary is 30 to 50 percent of the gross. According to the new rule, every company will have to change the salary structure so that the basic salary becomes 50% of the CTC and the remaining allowance is in the remaining 50% of the salary.
What will be the effect on PF contribution?
Basic salary will be at least 50 per cent of the total CTC under the new rule. Provident funds are calculated on basic salary only. In this case, the PF contribution of the employee will increase. Due to this, the contribution of employer to PF will also increase.
What will be the effect on these hand salary?
Under the new wage rule, the contribution to PF will increase, due to which these hand salary will be reduced. However, you will get the benefit after retirement, as the gratuity will increase, which is calculated on basic salary.
How much burden will increase?
If the basic salary of a company is 20 to 30 percent of the total compensation, then its wage bill will increase by 6 to 10 percent. For companies with 40% of basic salary gross, their wage bill will increase by 3 to 4%.
Gratuity will have to be given
If the basic pay and gross ratio is around 30% and after the implementation of the wage code, it can be increased to 60%. In such a situation, there may be double burden on companies. Also, fixed-term employees will have to pay a gratuity, whether they complete a 5-year job or not. The new code allows the employee to avail leave encashment at the end of every year.
How much will the company’s bill increase?
Spending on fixed-term employees will increase, as gratuity will become mandatory. High Salary and Mid Salary Group will incur less burden, but in the Lower Salary Range Group, the company’s expenditure will increase by 25 to 30 per cent. He said that this may affect the increment this year.
How many labor laws are these 4 codes created?
The government has created 4 new codes, including 29 central labor laws, including the codes of wage and social security. Vikram Shroff, Head (HR Laws) at Nishith Desai Associates said that some new concepts have been introduced in the labor codes but the biggest change is that the definition of wedge has been expanded. This definition, he said, is the same in all four labor codes. This will have a major impact on workers and employees. This can have a huge impact on the salary of the employee.
What is the new definition of wedge?
The new codes include basic pay, DA, retaining and special allowances in the wedge. HRA, Convenience, Bonus, Overtime Allowance and Commissions are excluded from this. All allowances under the new rule cannot exceed 50 per cent of the total salary. If they are more than 50 percent, then the higher amount will be considered as part of the wedge. For example, earlier gratuity was calculated according to basic salary i.e. basic salary but now it will be paid according to the wage. This can increase the pay of the employee and will increase the expenses of the employee.
