The Government of India's Ministry of Law and Justice notified the Code on Wages, 2019, which aims to modify laws related to salaries and incentives, as well as other matters. The new wage bill is expected to have a significant effect on the salaries of both central government employees and private-sector jobs. Finance Minister Nirmala Sitharaman announced that the Code of Wages Bill, which was passed in December, would take effect on April 1, 2021.
The government had put off implementing it because it wanted to do so with the other three codes on Industrial Relations, Social Security, and Occupational Health, Safety, and Working Conditions.
The government hopes to amend labour regulations and bring employees and employers closer together through this implementation. The codes will be critical in the year following the coronavirus pandemic, which wreaked havoc on the economy last year.
How Your EPF Balance Will Increase?
Private businesses started to pay a larger portion of the wages in the form of 'allowances.' In the private sector, basic pay ranges from 25 to 40% of the total cost of the business (CTC).
Employees' minimum basic pay will have to be 50% of their CTC after the new Wage Code is implemented on April 1st. The rest will be made up of different allowances such as leave travel, HRA, conveyance, and so on. This single reform would result in a substantial increase in the Provident Fund and Gratuity savings.
According to EPFO law, all PF withdrawals are tax-free, so this increase in EPF balance as a result of the new wage act would bring significant relief to EPF account holders.
Salaries to calculate gratuity and provident fund payments must be at least 50% of employees' gross salaries, according to the proposed amendments. Employers would have to increase the minimum pay part of the compensation to comply with this law, which will result in a proportional rise in gratuity payments and employee contributions to the provident fund.
For example, consider an employee receiving a monthly salary of Rs 20,000 with minimum pay of Rs 8000 and the rest protected by allowances before April 1, 2021. The basic pay, however, will increase to Rs 10,000 after April 1st. Allowances will be reduced to Rs 10,000 from Rs 12,000. However, in this situation, the employee's PF contribution would increase from Rs 960 to Rs 1200.
Before Wage Code
An employee receiving a monthly salary of Rs 20,000 with minimum pay of Rs 8000. The employee's PF contribution in this situation will be 12% of basic salary, or Rs 960. His contribution will be Rs 30,99,693 if he retires at the age of 55. Considering the increment of 10% year on year.
After Wage Code Bill
An employee receiving a monthly salary of Rs 20,000 with minimum pay of Rs 10,000. The employee's PF contribution in this situation will be 12% of basic salary, or Rs 1,200. His contribution will be Rs 38,74,616 if he retires at the age of 55. Considering the increment of 10% year on year.
Please keep in mind that these are just examples. However, it is entirely dependent on the individual's salary and allowances. We'll have to wait and see when the Wage Code comes into play.