Basic Pay Must Be 50% Now: How Much Salary Will You Actually Get?

The labour reforms of India, which have long been discussed, are now in the implementation stage. The main changes will be the way the companies will pay their employees and the whole salary structure in general. The government has also enacted a fresh set of labour regulations requiring employers to ensure that a minimum of half of an employee's total cost-to-company (CTC) is composed of basic wage, which is a move expected to have an impact on the take-home amounts over the next few months.

The new policy comprises four categories known as Wages, Industrial Relations, Social Security, and Occupational Safety and Health. The Wages Code was put into effect last Friday, and the complete set of rules for its operation will take a few weeks to be published. The organizations will have to modify their payrolls to align with the new division of wages.

The system change that compels contributions to retirement savings is among the biggest new developments. The company will have to raise the workers' basic pay to at least 50% of total remuneration, which would result in the deductions for pension fund and gratuity rising—both of which are worker's rights calculated as a percentage of basic pay.

In this way, a bigger piece of the CTC will be moved to be saved in the long run, which will cut down the monthly wallet money for many workers. Analysts believe that the retirement fund might grow quicker, but the newly reduced take-home salaries will be the immediate negative impact of this shift.

The new wage structure is aimed at the avoidance of the employers' situation where they may pay less in benefits by giving larger allowances. Currently, the employees' provident fund is 12% of the basic salary, and the gratuity is determined by the last drawn basic and the length of service. Consequently, when the base area widens, the entitlements will also increase.

Industry leaders assert that the Codes standardize the interpretation of "wages" throughout the entire new system, thus rendering social security calculations predictable. Wages consist of basic pay, dearness allowance, and retaining allowance; if the total of these components is less than half of the whole salary, that gap has to be filled for the purpose of regulation. This basic formula will also be used in computing gratuity, pension, and PF.

A few tax and human resources experts caution that the gratuity pay-outs might witness a drastic rise because, in the near future, the calculations for the payout will include almost all the allowances as per the revised definition of wages, except for a few like house rent and conveyance which will not be considered.

Key Aspects Being Introduced Through the New Labour Codes

1. Universal minimum wage

A nationwide minimum wage will be introduced, which will be applicable to both the organized and unorganized sectors. States will not be permitted to dispense with rates lower than the national standard.

2. Uniform wage structure

Basic pay, dearness allowance, and retaining compensation together must constitute at least half (50%) of the entire pay package.

3. Gender-neutral principles

Discrimination has no place in the matter of recruitment, pay, and conditions of employment for equal jobs. Wage payments for employees whose monthly earnings do not exceed ₹24,000 are to be made promptly.

4. Overtime pay

Extra hours worked are to be paid at the rate of double the normal wage.

5. Relaxed compliance and reduced penalties

A lot of violations are no longer considered crimes. First offenders are subjected to fines instead of imprisonment. A number of offenses can be settled by payment of a fine without the need for trial.

6. Lay-off approval thresholds raised

Factories with up to 300 workers can now lay-off or close without prior approval from the government, which was previously limited to 100. States can, however, make this limit even higher.

7. Working from home is now formally accepted

Studies and surveys carried out in the service sector are going to be recognized, and the service-sector employers can make notifications of work-from-home arrangements based on mutual agreement.

8. Quicker settlement of disputes

Labour disputes will be resolved faster by two-member tribunals taking care of the cases.

9. Strike regulations tightened

Issues regarding strikes — including mass casual leave — will not be settled without a prior notice of 14 days.

10. Gig and platform workers covered under social security

Aggregators are required to contribute to the social security funds for gig and platform workers a percentage equal to 1–2% of its annual turnover but in such a way that the total amount does not exceed 5% of the payouts made to them.

11. Gratuity eligibility period reduced

The fixed-term employees will be entitled to gratuity after completing one year of service as against five years in the past.

12. Inspection system radically changed

A digital, randomised inspection mechanism will totally replace the old system of visits based on the discretion of the inspectors to the extent of bringing down harassment and raising transparency.

13. One registration and filings

The idea of a single licence, registration, and return system is aimed at dwindling the paperwork. All employers are bound to issue formal appointment letters stating the entire wage and job details.

14. Flexibility for females and small units

The women are allowed to take night shifts only if they have the consent and safety measures are in place. Contract labor contractors now get a nationwide license for five years. Moreover, the factory compliance thresholds have been raised to ease the burden on smaller establishments.

15. Work hour limits kept

Eight hours a day and 48 hours a week remain the maximum limits for work and no less than eight hours a day and 48 hours a week can be worked with the possibility of flexible weekly structuring by mutual consent.