Take Home Salary Set To Reduce As 4 Labour Codes Likely To be Implemented

If reports are to be believed, the delayed labour codes are likely to be implemented in the next few months, which would see take-home salaries of most employees getting reduced, while retirement corpus being automatically increased.

It maybe recalled that these codes had to be implemented earlier in April 2021, which would have reduced the take home pay as provident fund contribution and gratuity was likely to increase. Companies had the time to realign their wage structures, due to the delay, but now things are likely to get implemented. Even if an alignment does take place, it would be very rare, that the employees in the private sector, who are drawing a large salary would get the same take home amounts.

What is the new wage code?

According to the new wage code, employers have to pay at least 50 per cent of an employee's CTC (cost to company) as basic pay because of which, contribution towards other components like provident fund and gratuity will increase.

The new wage code when implemented would exclude bonuses, pension, conveyance allowance, House Rent Allowance, housing benefits, overtime etc. It would basically comprise three main components including basic pay, dearness allowance and retention payment.

There is a tendency on companies to split the salary into various allowances to keep the basic salary low, which might not be possible under the new wages code.

These four labour codes will rationalise 44 central labour laws. The ministry had even finalised the rules under the four codes. But these could not be implemented because many states were not in a position to notify rules under these codes in their jurisdiction. Labour is a concurrent subject under the Constitution of India and therefore both the Centre and states have to notify rules under these four codes to make them the laws of the land in their respective jurisdictions. "Many major states have not finalised the rules under four codes. Some states are in the process of finalising rules for the implementation of these laws. Central government cannot wait forever for states to firm up rules under these codes.

Therefore it is planning to implement these codes in a couple of months as some time would have to be given to establishments or firms to align with new laws," a source told PTI. According to the source, some states had already circulated the draft rules. These states are Uttar Pradesh, Bihar, Madhya Pradesh, Haryana, Odisha, Punjab, Gujarat, Karnataka and Uttarakhand. Under the new wages code, allowances are capped at 50 per cent. This means half of the gross pay of an employee would be basic wages. Provident fund contribution is calculated as a percentage of basic wage, which includes basic pay and dearness allowance. The employers have been splitting wages into numerous allowances to keep basic wages low to reduce provident fund and income tax outgo.

With inputs from PTI