THE NEW WAGE CODE 2021 AND ITS IMPACT ON SALARY
The central government will be implementing a " New-Wage Code Bill 2021 " said by union finance minister Nirmala Sitharaman. This New wage code was passed in December 2019 but in the last month, our honourable Finance Minister confirmed that it will come into effect from 1st April 2021.
With the implementation of this bill, the government would be able to successfully consolidate three major acts which are the Minimum Wages Act 1948, The Payment of Wages Act 1936 and The Payment of Bonus Act 1965 into a single code. Though the bill was passed in December 2019 but will come into effect almost after 2 years one of the biggest reasons for this delay was that the government was intending to implement this bill alongside three other codes viz. industrial relations, occupational health safety and social security. Implementing this bill is one of the major changes in the last 7 decades.
The code of wages act applies to all the employees including organized and unorganized and is not restricted only to the employees of scheduled employment.
Governments objective behind this major step:
The main intention of the government behind the implementation of this code was to transform old and obsolete existing laws into more accountable and transparent ones. Such equity aims at bringing parity between employer and employee.
Impact of the new wage code 2021 on salaries of employees:
The new code will directly impact the salaries of the central government employees including private sector employees too.
Earlier under the wage code 2019, only three components were there that is basic pay, dearness allowance and retention payment while it envisages all remuneration provided to the employees it excludes bonus, pension and provident fund contributions, conveyance allowances, house rent allowances, housing benefits, overtime, gratuity, commission, retrenchment compensation and such other things.
Usually, most companies keep less than 50 per cent of the non -allowance part of the employee's salary so that they to contribute less to Employee Provident Fund and Gratuity and reduce their burden but after the implementation of the new wage code from 1st April 2021 it is mandatory to pay the basic salary equivalent to 50 per cent of the employee's cost to the company (CTC) and the remaining 50 per cent in the form of the allowances such as leave travel concession, house rent allowance, conveyance allowance, overtime etc and if the aggregate of any of the exemptions exceeds 50 per cent of the CTC then the extra amount will be deemed as remuneration and will be added to the wages.
A greater rise in savings towards gratuity and the provident fund will be seen through this code. Earlier an employee who works in an organization for five continuous years was eligible to receive gratuity payments but now if an employee completes one year in an organization then also he would be able to receive gratuity. The new wage code bill largely benefits the retirement aspects but it also affects the take-home salary of employees. They will have lower cash in hand then they did every month.
Let us take an example of an employee with salary of Rs. 25000 to understand the New Wage Code more precisely
In the above example, the gratuity would be computed under the current payment of gratuity act provisions on the basic salary of Rs. 10,000 per month. But from the perspective of PF, the employer would have contributed PF on Rs. 15,000 per month (which is the statutory wage ceiling for PF).
Under the new wage code , the wages for this employee would amount to Rs. 17,000 per month, and gratuity will be calculated on this amount. If this employee quits the organisation from the codes become effective, and let us presume has put in 15 years of service, the gratuity payable would be Rs. 147,115 as against the earlier amount of Rs. 86, 538 a clear increase of 1.7 times.
Here are some of the links regarding the explanation of The New Wage Code 2021