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On 9th December 2020, the Government of India released new wage rules (draft version) of the Code on Wages 2019.
The Code on Wages Bill 2019, which was passed by the parliament last year, is likely to come into force from 1st of April 2021. The Government will notify the final rules after considering public feedback.
What to expect from the new wage rules
According to the draft of new wage rules, employee wages for calculation of gratuity and provident fund (PF) contributions will be at least 50% of their gross pay.
To simplify, the basic salary will be 50% of the total employee compensation. The allowances part of the total cost to company (CTC) will not exceed 50% of the CTC.
Current scenario of the wage structure in India
Currently, most companies in India allocate a higher portion of CTC for allowances and a lower amount to non-allowances, i.e. Basic Pay.
Employers will have to restructure their employee CTC to align with the new wage rules once the Government enforces the Code on Wages 2019.
Benefit of new wage rules to employees
Since the PF contributions are calculated using fixed components, changes to the Basic Pay will affect the take-home pay of employees
The new measures will enhance social security and retirement benefits for the salaried individuals in India. But, a higher allocation to the retirement plan will reduce employee take-home pay proportionately.
How the new wage rules impact businesses
Employers will also experience the effect of new wage rules. Their PF contributions and gratuity will increase in proportion to the rise in their employees’ contributions.
Also, they might struggle to restructure the employee CTC because of the complexities of the new rules.
We at Razorpay, already have a solution – RazorpayX Payroll.
Our automated payroll software – RazorpayX Payroll, is updated with all the tax and labour laws amendments. Employers do not have to worry about decoding new wage rules and making changes to employee salaries.
The software will update employers about implementation of the Code on Wages Bill 2019 as soon as the Government announces it. After that, they will be able to restructure salaries for all employees in a single click.
Automate your payroll & compliance with RazorpayX Payroll and never worry about the changing regulations.