The implementation of the Code on Wages, 2019, will change the salary structure of employees. It states that an employee’s basic salary must be at least 50% of their cost-to-company (CTC). Previously, companies had lower basic salaries, resulting in higher take-home pay for employees.
PF account holders: The government implemented new labor codes as part of major reforms to labor laws. The new labor codes were long awaited, having been passed by Parliament long ago. Experts say that the four new labor codes, implemented on November 21st, make significant changes to current needs. These changes have significantly benefited employees in social security regulations, particularly the inclusion of gig workers within their scope.
Major Changes in Gratuity Rules
With the implementation of the Code on Social Security, 2020, many old regulations, such as the Gratuity Act and the Employees’ State Insurance Act, have ceased to exist. Fixed-term employees will benefit significantly from the new gratuity rules. Previously, gratuity benefits were available after completing at least five years of service. Now, fixed-term employees will receive gratuity benefits after completing one year of service. Fixed-term employees are employees hired by a company for a fixed period of time, which could be two, three, or more years.
Basic salary should be at least 50% of CTC
The implementation of the Code on Wages, 2019, will change the salary structure for employees. It states that an employee’s basic salary should be at least 50% of their cost-to-company (CTC). Previously, companies used to set lower basic salaries, resulting in higher take-home pay for employees. This is because PF deductions are based on basic salary. 12% of an employee’s basic salary is deposited into their PF account every month.
The EPF Act, 1952 will remain in force.
Experts say that with the implementation of the new labor codes, most rules, including workers’ salaries and social security, have changed. However, the PF rules have remained unchanged. It was previously believed that the EPF Act, 1952, would also cease to exist with the implementation of the new labor codes. It was expected that the PF rules would also be included in the Social Security Code. However, the government has not issued a notification in this regard. This means that the old PF rules will remain in place with the new labor codes.
Changes to the salary structure may be difficult.
The continuation of the old PF rules may make it difficult for employers to adjust their salary structure to the new labor codes. Experts say that the government may implement new PF rules in the future, making it easier for employers to adjust their salary structure. According to the new rules, C2C should be at least 50% of the basic salary. This means that employers will now have to adjust components like HRA and LTA within the remaining 50%. This will impact the amount of HRA and LTA. Employees’ LTA amounts may be reduced.
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