Your take-home salary may be impacted from April 2021. Know how?

Your take-home salary may be impacted from April 2021. Know how?

The take-home salary of employees may reduce starting next financial year as companies would be required to restructure pay packages once the government notifies draft rules under the new wage rule. But if your salary is over Rs 15,000 the new Code of Wages may not materially impact your salary.

“For those whose salaries are Rs 15,000 or less, the new definition of wages will ensure a higher provident fund contribution and savings where the excluded allowances are more than half of their total salary.”

The new compensation rules, a part of the Code on Wages 2019, are expected to become effective from the next financial year starting in April 2021.

New Rules

• As per the new rules, the allowance component cannot exceed 50 per cent of the total salary or compensation. This implies that the basic salary has to be 50 per cent. In compliance with the rule, employers will have to increase the basic pay component of salaries, resulting in a proportional rise in gratuity payments and employees’ contribution to the provident fund (PF). 
• An increase in such contributions would mean a lower take-home salary for employees. The retirement corpus of employees will also rise. 
• At present, most private companies prefer setting the non-allowance part of the total compensation less than 50 per cent and the allowance portion greater. This will, however, change with the new wage rules in motion. It is highly likely that these new rules will affect the salaries of private-sector employees as they usually get higher allowances. 
• As per the new rules, employers will need to increase the basic pay of employees to meet the 50 per cent basic pay requirement. 
• The Code on Wages Bill, 2019 seeks to amend and consolidate laws relating to wages, bonuses, and matters connected therewith. It was passed in Rajya Sabha on August 2, 2019. Lok Sabha passed the bill on July 30, 2019.
• The Code will subsume four labour laws — Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, and Equal Remuneration Act. After its enactment, all these four Acts would be repealed.

The Code of Wages is a part of four labour codes that resulted from the merging 29 out of the 44 central government labour laws. The erstwhile acts that governed the employees’ provident fund (EPF) and gratuity will now be part of the Code of Social Security. But the calculation of your provident fund (your retirement kitty) will depend on the new definition of wages as per the new Code of Wages, 2019.

With Inputs from India TV and MoneyControl