Under the new rules, the subsidy component cannot exceed 50 percent of total salary or compensation. What this essentially means is that the base salary should be 50 percent.
Currently, most private companies prefer to keep the unsubsidized portion of total compensation below 50 percent and the subsidized portion is higher. (Photo: Reuters / Representative Image)
Employees take-home wages may be lowered starting next year, as companies will have to restructure pay packages after the government notifies draft rules under the new wage rule.
Employees should note that the new compensation rules, which are part of the 2019 Wage Code, are likely to take effect from the next financial year starting in April.
According to the new rules, the subsidy component cannot exceed 50% of the total salary or compensation. What this essentially means is that the base salary should be 50 percent.
To comply with this rule, employers will need to increase the basic payment component of wages, which will result in a commensurate increase in bonus payments and employees’ contribution to the provident fund.
An increase in these contributions will result in a lower net pay for employees. At the same time, the retirement corpus of employees will increase.
Currently, most private companies prefer to keep the unsubsidized portion of total compensation below 50 percent and the subsidized portion is higher. However, this will change as soon as the new wage rules go into effect. It is more likely to affect the salaries of private sector employees, who generally receive higher allowances.
Under the new rules, employers will have to increase the base salary of employees to meet the basic pay requirement of 50%.
While the new wage rules may lower employees’ take-home wages, experts have said the new step will help provide better social security and retirement benefits.
The new salary rule could also push the company’s costs towards salaries as they will have to contribute more to FP and employee gratification. Experts predict that wage costs incurred by companies will increase by 10 to 12 percent after the new wage rules are implemented.
It should be noted that the Wage Code was approved by Parliament last year. The final rules will be notified by the government after considering public comments on them.
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