The new compensation rules, a part of the 2019 Wage Code, are expected to take effect from the next financial year beginning in April.
Employees’ take-home wages may be lowered starting next financial year, as companies would be required to restructure wage packages once the government notifies the draft rules under the new wage rule. The new compensation rules, a part of the 2019 Wage Code, are expected to take effect from the next financial year beginning in April.
A LOOK AT THE NEW RULES
- According to the new rules, the subsidy component cannot exceed 50% of the total salary or compensation. This implies that the base salary must be 50 percent. According to the rule, employers will have to increase the base salary component of salaries, which will result in a commensurate increase in bonus payments and employees’ contribution to the provident fund (PF).
- An increase in these contributions would mean a lower net salary for employees. The corpus of employee retirement will also increase.
- Today, most private companies prefer to set the unsubsidized portion of total compensation at less than 50 percent and the subsidized portion higher. However, this will change with the new salary rules in place. These new rules are very likely to affect the salaries of private sector employees, as they generally receive higher allowances.
Expect lower net pay starting in 2021 – here’s why
- Under the new rules, employers will need to increase the base salary of employees to meet the 50 percent base salary requirement.
- The Wage Code Bill of 2019 seeks to amend and consolidate laws related to wages, bonuses, and related matters. It was passed in Rajya Sabha on August 2, 2019. Lok Sabha passed the bill on July 30, 2019.
- The Code will subsume four labor laws: the Minimum Wage Law, the Wage Payment Law, the Bonus Payment Law and the Equal Remuneration Law. After its enactment, all these four laws would be repealed.
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