We all look forward to Payday, whether it is to pay off your rent or finally buy that one item that has been sitting in your shopping cart waiting to be checked out. While you might be eagerly waiting for your salary, the new wage rules put out by the government has changed the amount that you actually take home with you.
According to the government's new Code on Wages 2019, the allowance component of the salary cannot exceed more than 50% of the toast salary and hence the base pay has to at least be 50%. In simpler words, any sort of compensation or allowance (travelling expenses, overtime charges, reimbursements etc) that the company would pay the employee as part of their ‘take-home’ salary cannot exceed their ‘base pay’.
Before this new rule, private companies mostly would prefer to pay their employees a higher allowance component (more than 50%) and hence a lower base pay (less than 50%). However, with this new rule, they would have to restructure their pay packages to accommodate increasing their employees base pay. Whilst this might sound like a good thing, employees are concerned that this new rule will result in a much lower ‘in hand’ salary but the increase in their base pay will directly result in the increase in the funds that go towards their provident fund and other gratuity payments. Even the employee’s retirement corpus would grow with increased funds towards ‘the retirement contributions’. In short, these new measures would give employees a better and secured future along with retirement benefits.
Gopal Bohra, a partner in Mumbai-based professional services firm NA Shah Associates tells NDTV "Though the new wage code will give more social security to the employees at the time of retirement by way of the increased corpus of gratuity and provident fund, it will reduce the monthly net take-home salary because as proposed 50 per cent of total salary to be considered for the purpose of contributions to retirement funds.”
This new rule also means a significant increase in the employer's workforce cost. Kamal Karanth, co-founder of specialist staffing firm Xpheno tells Business Today that employers would have to bear a one time cost of auditing their current employee’s base pay as well as restructuring their payment packages.
While this allocation by the government would be beneficial towards an employee's retirement planning, it is unclear how the employee’s with a lower wage or a daily wage payment schedule would benefit. Since they mostly depend on the ‘take-home’ salary portion of their payment, they might be most affected.
Effective from April 2021, this law does have it’s benefits but further clarity is required on the governments part to clearly outline their repercussions on the salary of employees.