The Centre, working towards labour reforms in the country, is likely to implement all the four labour codes in the next few months. After the implementation of the wages code, there will be a significant change in the way basic salary and provident fund (PF) of employees is calculated.
The implementation of these laws will result in a reduction in the take-home pay of employees. However, the amount of employees’ savings i.e. PF will increase.
The implementation of four labour codes, which will rationalise 44 central labour laws on industrial relations, wages, social security and occupational health safety and working conditions, was envisaged by the Union labour ministry to begin from April 1 of this year.
For this, the ministry had also finalized 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.
Consent from the states
Labour is a concurrent subject under the Constitution of India. In such a situation, 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.
Here’s how the labour codes will change the pay structure:
Under the new wage code, the allowances will be capped at 50 percent. This means half of the gross pay of an employee would be basic wages. Provident Fund (PF) is calculated on the basis of percentage of basic salary. This includes basic pay and dearness allowance (DA).
At present, employers divide the salary into several types of allowances. This keeps the basic salary low, thereby reducing the contribution to provident fund and income tax. In the new wage code, the provident fund contribution will be fixed on the basis of 50 percent of the gross pay.
Once implemented, employers would have to restructure the salaries of their employees as per the new code on wages.
“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,” PTI quoted a source as saying.
According to the source, some states have already released the draft rules. These states include Uttar Pradesh, Bihar, Madhya Pradesh, Haryana, Odisha, Punjab, Gujarat, Karnataka and Uttarakhand.