Labour Code: Here’s what will change in your take home salary, PF, DA amount, pay structure and more

The government is said to be implementing the four labour codes in the coming months and that would eventually mean the take-home salary of the employees will go down. However, the Provident Fund (PF) will increase.

The four labour codes are likely to see the light of day in a couple of months as the central government is now keen to go ahead with the implementation of these laws. The implementation of these labour codes will result in the reduction in take-home pay of employees and higher provident fund liability of companies.

The labour ministry had envisaged implementing the four codes on industrial relations, wages, social security and occupational health safety & working conditions from April 1, 2021. These four labour codes will rationalise 44 central labour laws.

The ministry had even finalised the rules under the four codes. But these could not be implemented because many states were not in a position to notify rules under these codes in their jurisdiction.

As per the new wages code, allowances are capped at 50 percent which basically means that half of the gross pay of an employee will be basic wages. The PF contribution is calculated as a percentage of the basic wage, which includes basic pay and dearness allowance (DA).

The employers have been splitting wages into numerous allowances to keep basic wages low to reduce provident fund and income tax outgo. The new wages code provides for provident fund contribution as a prescribed proportion of 50 per cent of gross pay.

After the implementation of new codes, the take-home pay of employees would reduce while provident fund liability of employers would increase in many cases.

Once implemented, employers would have to restructure the salaries of their employees as per the new code on wages.

The ministry had even finalised the rules under the four codes. But these could not be implemented because many states were not in a position to notify rules under these codes in their jurisdiction.

Labour is a concurrent subject under the Constitution of India and therefore both the Centre and states have to notify rules under these four codes to make them the laws of the land in their respective jurisdictions.

"Many major states have not finalised the rules under four codes. Some states are in the process of finalising rules for the implementation of these laws. Central government cannot wait forever for states to firm up rules under these codes. Therefore it is planning to implement these codes in a couple of months as some time would have to be given to establishments or firms to align with new laws," a source told PTI.

According to the source, some states had already circulated the draft rules. These states are Uttar Pradesh, Bihar, Madhya Pradesh, Haryana, Odisha, Punjab, Gujarat, Karnataka and Uttarakhand.

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