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.
