Must read new Labor Law for Workers in 2021

The implementation of codes on wages is on priority now. The government has come up with a new Labor Law for the firms to adhere to. The steer clear of which can be a reason for legal quash. Therefore, the government is in the practice of yielding adequate time for the companies to restructure their schemes and employee salaries.

The states are provided with set guidelines to follow; on accepting the same, the labor ministry would declare the rules of new labor law and the prepared four codes. The allay in focusing on the matter is the surge of Covid cases in the states and elections holding its applicability.

The new Labor and Employment rules can impact the salaries of the employees. Meaning the reduction of it. It calls for us to know the reason behind it.  

With that being said, the rule is compelling the employees to alter the compensation as it is coming to play in a shorter time. The new code shall cap 50% allowances wherein it means the basic wage is half of the total pay. A basic salary includes dearness allowance and basic income, where a percentage of the basic salary is contributed to provident funds. 

The definition of wages didn’t include pension, PF, bonuses as per the 2019 wage code. Hence, the new wage code is coming into the act to the enclave. Thus aiming to increase the PF for the employees.

The prepared four codes of the central government are meant to be implemented in the following areas: occupational safety and health, social security, industrial relation, Working conditions, and wages. 

These rules have to be notified by the states for them to come into play. But since few times have not lined up with these rules in their jurisdiction, the central government is giving time. And also said that it couldn’t wait forever. 

Brief on the impact of the codes on the take-home salary.

Firstly the Basic Pay

As per the new wage code, it is mandatory to keep the basic wage of the CTC to be 50 percent. The remaining CTC will include bonuses, housing allowance, and overtime expenses.

If the companies bear the additional expenses to an employee where it exceeds 50 percent, basic pay will be treated as the remuneration. 

Secondly, the Gratuity Cost.

While the basic pay limit is maximized 50 percent CTC, a percentage of the basic pay is valued for the gratuity cost which is new labor law. Thus it is increasing the gratuity cost of the employee concerning the security and limiting the take-home salary.

Thirdly, Working Hours are set.

The maximum limit for working hours is set to 48 hours in a week and gives the employee flexibility in working it out in four days, maybe five defined, or even six days.

Overtime Payment.

The rules of the law also consider the employees’ overtime working. Be it 15 minutes or more than; they are paid. Thus valuing the employers extra time. 

Final Thoughts

Though the new wage code may look overwhelming for the employees receiving high take-home salaries currently, the point of implementing the new labor law is to increase the provident fund to the employees for social security. In a way, it is helping the employers in the foreseeing future. And the central government is into implementing the four codes as soon as the states line up with the rules set to abide by the code.

Employers have divided wages into several tax exemptions to keep basic wages low and reduce savings and income tax expenses. The new wage law stipulates that contributions to the reserve fund account for 50% of total wages.

If the new regulations take effect on April 1, they will, in many cases, increase the net salary of employees and the employer’s obligation to reserve funds. Employers now have more time to adjust employee wages based on the new wage code.

Since working under the Indian Constitution is a parallel issue, both the center and the states must communicate the code’s rules to take effect within their relative jurisdictions.

To the new labor laws, effective management uses well-equipped payroll software that adheres to these codes. The software implements new policies much more accessible by setting the formula as required by the company.

Especially for the company’s HR department, it is more accessible, flexible, and user-friendly to manage every different process of the company policies.