Take-home Salaries Will Reduce Under The New Wage Code

Take-home Salaries Will Reduce Under The New Wage Code

The central government recently released the new compensation rules, effective from next year, under the Wage Code 2019 passed by the parliament the previous year. As part of the rules, the takehome salaries of people will be reduced from April 1, 2021. The New Code of Wages' primary objective is to increase the social security benefits for employees.  


The wage code attempts to simplify the wage-related regulations and easier implementation. 


Under New Code of Wages, in effect, benefits such as gratuity, retrenchment compensation and provident fund, will be calculated based on at least 50 per cent of the gross remuneration of employees, in situations where the sum of basic salary and other fixed allowances (such as dearness allowance) is less than 50 per cent of the gross remuneration. Allowances cannot be more than 50 per cent of the total compensation. Consequently, the basic salaries in govt jobs, i.e, basic pay+DA should be 50 per cent or more of total pay from April.


The New Code of Wages forms one of the four codes which were formed after merging 29 out of the 44 labour laws of the central government. The Code of Social Security will now include acts governing the employees’ provident fund (EPF) and gratuity. However, the new definition of wages according to the Code of Wages 2019 will be used to calculate employee's provident fund.


Under the new wage code, the basic pay of the employees will have to be restructured and increased to meet the new requirement. The revision will reduce the take-home pay as provident fund (PF) contribution of most of the employees will go up which is calculated as a percentage of basic salary.


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