New wage rules: How it will affect your salary? All about it

Coming 1 April 2021, your take-home salary may reduce once the government notifies draft rules under the new wage rule. The new compensation rules, a part of the Code on Wages, 2019, are expected to become effective from the next financial year. Apart from the salary, what all are expected to change and how would it affect the salaried class. Here you have three major takeaways to understand.

Takeaway 1: White-collar workers will be entitled to overtime

Working professionals who work overtime would benefit once the Code on Wages, 2019, comes into force. The Code widens the purview of overtime pay to include all employees, including managerial staff. According to media reports, the code states that the compensation for overtime work should be at least twice that of the employee’s regular pay. At present, the white-collar workers are not in the purview of the overtime wage payment.

Takeaway 2: Gratuity, PF contribution to increase in new wage rules

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Employees are likely to get higher gratuity payments and employers’ contribution to their retirement corpus may also rise, but their monthly take-home salary may come down. According to the Centre’s proposed compensation rules which are expected to kick in from the next financial year, the allowance component in the salary package cannot be more than 50% of the total compensation.

Takeaway 3: Salary restructure on the cards?

Currently, many private companies prefer to set basic pay as low as 20% of the total salary with allowances taking the bulk of it. To comply with the new rules, these companies will have to revamp their salary structure by raising the basic pay. With basic salary going up, companies will have to shell out more for their share of PF contribution and gratuity. Usually, employers deduct 12 per cent of the salary for EPF contribution and deposit the same amount from their kitty.

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What is the Code on Wages, 2019?

The Code on Wages, 2019 is an act passed by the Parliament of India on 23 July 2019 which replaces the four existing labour laws. They are 1) the Payment of Wages Act, 1936, 2) the Minimum Wages Act, 1948, 3) the Payment of Bonus Act, 1965 and 4) the Equal Remuneration Act, 1976.