New Wage Rule to become effective from April 2021

The new wage rule will become effective from April 1, 2021.

Highlights

• After the new wage rule will be implemented, the take-home salary of private sector employees will fall.
• The private companies will need to restructure the pay packages of employees under the new wage rules.

New compensation rules

• The new compensation rules are part of the Code on Wages. This code on wages were passed by the Parliament in the year 2019.
• As per the new rules, the allowances can not be more than 50% of the total compensation.
• This means, the basicpay in the government jobs, basic pay plus dearness allowance, will have to be 50% or more of total pay from April.
• Most of the companies keep the non-allowance part of employee’s pay package less than 50%.
• Thus, with the new rules, pay packages for most of the employees will be changed.
• Thus, the Companies will require to increase the basic pay of employees so as to meet the new rules.
• New rule will reduce the take-home pay while the provident fund (PF) contribution of the employees will go up.
• As the new rule is implemented, the practice of structuring the salaries with higher allowances to lower social security contributions will not be in practice.
• If the ‘wages’ bucket will be below 50% of the remuneration, then some of the portion of components which has been excluded from the ‘wages’ bucket will be added to it. Thus, in total, the bucket will become 50% of the remuneration to calculate different payments like the social security contributions, leave encashment and gratuity.

Benefits

The social security and the post-retirement gratuity amount of employees will be increased.