The new wage code mandates that basic pay will have to make up 50% of employees' CTC.
In what may come as good news for salaried employees, the take-home pay may not be affected this year as the Central government is unlikely to implement the new labour reforms under the Code of Wages, 2019 anytime soon.
The government was expected to implement these reforms from April 1 this year as the new financial year began. However, the implementation was postponed.
As per reports, the second wave of the COVID-19 pandemic has kept the states busy and therefore, they are now slowing down readying the framework to implement the labour codes. In fact, the central government, which had earlier asked the states to frame the draft rules quickly, has slowed down on pursuing the states. Right now, the governments are focusing on containing the pandemic which has wreaked havoc across the country.
This postponement of the implementation of the new labour code is likely to help the corporates that were worried about the changes. They will now have more time to realign the salary structures to comply with the new rules.
It may also be noted that the companies had earlier asked the Centre for relaxation on the 50 per cent mandatory cap on the allowances that were introduced in the new rules. The companies had said that the cap with put a financial burden on them during the pandemic.
For the salaried employees, this means that their take-home pay is unlikely to come down due to the new labour code.
The new wage code mandates that basic pay will have to make up 50% of employees' CTC. Allowances to employees, like leave travel, house rent, overtime and conveyance, will have to be limited to the remaining 50% of CTC. If any of these exemptions, in aggregate, exceed 50% of the CTC, the extra amount will be deemed as remuneration and will be added to the wages.
The wage code will lead to an increase in gratuity payments and employers' contribution to their retirement corpus. Many private companies prefer to keep the allowances component higher and the basic salary lower. This will not be allowed under the new rules.
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