Changes, challenges, and impact for employees and employers: - New code on Wages

A welcome move

The new wage code for India for 2022 is now in effect. The Second National Commission on Labour submitted its report on June 2002 and recommended that the existing set of labour laws should be broadly integrated into the given groups –( Industrial Relations, Wages, Social Security, Occupational Safety, Welfare & Working conditions)

The Indian government has made an effort to streamline the many wage-related laws through the New Wage Code. The compensation structure and tax obligations of the private working class as well as the salaries, provident funds, and gratuities of central government officials will all be directly impacted by these new reforms.?

Definition of ‘Wages

In the Wage Code Bill 2019, the definition of “wage” has been changed. The monthly basic compensation of an employee must equal at least 50% of the net CTC in accordance with the New Wage Code’s revised definition of “wages” (Cost To Company).

What does this mean for employees?

Because the amount of basic pay is changing, other components like the provident fund contribution and gratuity, whose values depend on the basic salaries, will also fluctuate. The employees’ reduced take-home pay and increased contributions to the retirement fund will be the most noticeable effects of this restructure.?

The take-home pay of employees in the private sector will also be slightly lowered as a result.

Minimum floor wage: Beyond the older Minimum Wages Act which laid down the procedure for establishing minimum wages, the Code on Wages has also introduced the concept of ‘floor wage’, also applicable to the unorganized workforce.

“This will be determined by the Central government based on the minimum living standards and level of skills of workers across geographical regions based on which state governments shall identify a minimum wage rate, to be revised every 5 years or earlier. Provisions for overtime wages twice the normal wages on an hourly or part-of-hour basis as well as coverage of Employees’ State Insurance (ESI) has also been added to minimise exploitative practices across areas of work. The Code also includes provision for timely payment of wages and is a significant step in reducing regional disparity on this parameter,” says Kumar.

Introducing new wage code 2022

The Indian federal government combined a total of 29 labour laws into four new codes during the presentation of the Union Budget 2021. The Industrial Relations Code, Code on Occupational Safety, Code on Health and Working Conditions, and the New Wage Code are the four new codes.

?The current labour rules have been altered in a number of ways. But the definition of “wage” has undergone the most significant alteration. This modification’s new wage code tries to directly factor 50% of the wages into employee salaries.

Many businesses now give their workers extra supplementary allowances and lower their base pay to ease the burden on the business. However, under the rules established by the New Wage Code Act of 2022, the employee’s basic pay cannot be less than 50% of the CTC. The House Rent Allowance (HRA), the Basic Wage, Retirement Benefits including PF and National Pension System, and Other Tax-Friendly Allowances are the minimum four main components of an employee’s CTC.

When new wage code will be implemented?

As of July 2022, the new wage law will be implemented and will have an impact on employees’ working hours, salary restructure, and PF contributions. According to a formal source, the new pay law for 2022 has pre-published draughts in at least 13 Indian states. The process of finalizing the draught regulations of the new wage code and the other labour codes was concluded by the Center in February 2021, and the new wage code was notified on August 8, 2019.

Changed in Payroll after introducing the new wage code?

Increased contribution for the Provident Fund

Daily Tax Analysis states that the PF contribution was 12% of the base wage. The provident fund contribution, however, is expected to rise significantly, albeit exactly how much is yet to be determined given the changes made by the new pay code.

Change in Gratuity Rule

According to the Payment of the Gratuity Act of 1972, a gratuity is a sum of money given by an employer to a worker as a sign of appreciation. One of the many elements that make up the employee’s total income is the gratuity payout.

Changes in Salary Structure

When the New Wage Code Bill is put into effect in 2022, CTC will be impacted by the rise in the basic pay, and if an employee’s basic salary was less than 50%, it should be raised. Allowances for things like leave, travel, overtime, and transportation will be restricted to the remaining CTC percentage.

Changes in working hours

The four-day workweek provision in the new pay code has been welcomed, but there is a catch: the day lost merely extends over the remaining four days.?

To make up for any lost time, the new rule requires that the employee log in for 12 hours each day. Your weekly hours are still regulated at 48 hours even if you work four or five days a week. The modification is intended to make it simpler for businesses to adopt four-day workweeks without actually sacrificing a day of productivity.?

Additionally, factory workers’ overtime limits have been increased from 50 hours to 125 hours.

Quicker full and final settlement: Companies will now have to clear all employee dues, including salaries, leave encashment, reimbursements, etc., within two days of the last working day of the employee from the current 45-60 days after employee exit.

Industry experts, however, say the government needs to plan the implementation in a phased manner.

“A phased implementation will ensure adequate time is provided to implement the same, irrespective of the size and scale of the organization. There is also a need for educating the workforce/managers/ management in a timely manner. Labour code can’t be retrospective but only prospective,” says Harish.

Reference:- Google and other different sources