New Wage Code: 5 changes in your salary structure from April 2021
Salary Structure: Wages, after listening this terms many of us get confused; as there were around 29 regulations which used to define the meaning of the term “Wages”. While calculating Income under Salary the calculations of allowances were based on different definitions of wages or salary.
For example, At the time of calculating the allowances we have to check that which definition of the wage needs to be considered. Some of them includes Basic and Dearness allowances whereas others definition includes special allowances as well Basic and Dearness allowances and House Rent Allowance.
But, after facing so many hindrances the things are getting sorted. Government is trying to ease these complications. They have come up with the New Wage Code, which is going to change the structure of Salary.
New Wage Code to change salary structure
To sort out the confusion related to the term wage, which was defined separately in around 29 legislations. The four labour codes were introduced in the New Wage Code Bill 2021. There are 4 codes in it, which are going to subsume 29 legislations.
The objective of each of these regulations varied and hence the definition of wages under many of these regulations was also different depending upon the case. These codes are aimed at Unification, Simplification, and Consolidation of these regulations, so they are having a common approach, which includes having a uniform definition of wages across all these regulations.
In the above discussion we have read about the issue before this decision of implementing New Wage Code was taken. Now let us see the impact of the same after getting introduced.
Impact of Introduction of New Wage Code
New Wage Code Bill 2021 will come in effect from April 2021. This will lead to the following changes –
1. Contribution in Provident Fund will increase-
Till March 2021 contribution in PF was 12% of your basic salary. After April 2021, the basic salary will become 50 per cent of the Cost to Company (CTC), the contribution to the PF will also increase.
For example, take an employee of Babatax has a monthly CTC of Rs 2,00,000, as per the new norms Rs 1,00,000 will be the basic salary and Rs 12,000 will go to the PF account.
2. Change in Gratuity rule
As per those existing rules of Gratuity Act’s regarding Gratuity. Employees are entitled to receive gratuity after 5 years of continuous work in the same company, but as per the newly introduced rule in the new law, employees will be entitled to gratuity even if they have been employed for just one year.
3. Changes in salary structure
After the implementation of the Bill, the share of basic salary in an employee’s CTC should be 50 percent or more. If their basic salary is less than 50 percent as per their salary details, then it is going to change soon. CTC will get affected with the increase in their basic salary after the implementation of the Bill. Allowances to employees, such as leave travel, house rent, overtime and conveyance, will be capped to the remaining 50 per cent of CTC.
4. Relaxation with respect to Leave Travel Concession (LTC) rules
The Government has declared relaxation in the Leave Travel concession (LTC) Scheme due to the COVID-19 outbreak in 2020. Now, the Central Government Employees can claim income tax benefits on expenses made between October 12, 2020 to March 31, 2021 on purchase of items that attract GST rate of 12 per cent or more instead of travel expenses.
5. Employee Work Time
According to the new law, 15-30 minutes of extra work done would qualify as overtime. Currently, less than 30 minutes of extra work is not considered for overtime.
The new rules also state that employees would have to be given a break of half an hour after every five hours of work.
Read Also: Everything about Form 16 under Income Tax
The author of the above article is Sneha Bhalotia.
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