New Wage Code And its Impact
What is a Wage Code?
The wage code in India is a set of labor laws that govern the payment of wages and employee benefits in the country. The code sets minimum wage standards, outlines salary structures, and mandates overtime pay and working hours. Employers are also required to comply with regulations regarding deductions from wages and fair labor standards.
Failure to comply with these regulations can result in penalties and legal action, as wage theft is a serious offense. Effective payroll management is crucial for ensuring compliance with the wage code, as well as meeting employee expectations for fair compensation. By adhering to the wage code and other employment laws, employers can create a more equitable and productive workplace for their employees.
In 2019 and 2020, a total of 29 labor laws were merged, streamlined, and simplified into four labor codes:
- The code on Wages 2019
- The Industrial Relations Code 2020
- The Code on Social Security 2020
- The Occupancy Safety, Health, and Working Conditions Code 2020
These four labor codes are expected to be implemented soon, as approximately 23 states have already drafted rules for them. It is important to note that labor is a concurrent subject, meaning that both the central government and state governments have the authority to make laws on it.
How New Labour Code Impact Employees?
Implementation of the four codes will bring significant changes to the way industrial houses treat their employees, impacting their working hours, take-home salary, and other rights. The wage code will lead to changes in salary restriction, basic pay, provident fund, and gratuity calculations.
This will result in a decrease in take-home salary but an increase in retirement savings, which some employers may oppose due to increased employee costs.
Under the new law, the basic salary of employees must be 50% of their gross salary, and both employee and employer PF contributions will increase.
The new law also permits companies to implement a 4-day workweek, but daily work hours will increase from 9 to 12 hours to meet the 48-hour weekly work requirement. If employees work beyond the 48-hour week, they must be paid overtime.
The new wage code also mandates that companies pay the full and final settlement of salary and dues to employees within two days of their last working day, compared to the current practice of 45 to 60 days. Additionally, the maternity leave for female employees will increase to 26 weeks from the current 12 weeks, and companies cannot place them on the night shift without their consent. The labor force will also be entitled to leave after every 180 days under the new leave policy introduced in the wage code.
Steps May Be Considered By Corporates
- Conduct an immediate review of wage calculations and assess the financial impact of the new implementation to ensure accuracy and identify any potential discrepancies.
- Align the compensation structure to optimize employee aspirations by taking into account tax implications and other factors such as take-home components, benefits, and bonuses.
- Review and update HR policies to ensure they are aligned with the new compensation structure and reflect the needs and expectations of employees.
- Categorize all employees, including fixed-term employees, gig workers, and any other non-traditional engagement models, to ensure they are appropriately compensated and included in the compensation structure.
- Map current internal processes to identify any changes required to ensure compliance with the new compensation structure and ensure that all internal processes are aligned with the new policies and compensation structure.
The new labor codes bring advantages for employees and include rules for working from home during the pandemic. Some suggest changes while others eagerly await implementation, but overall, the code aims to improve employee well-being.
SBS Global is a certified company providing Outsourced Financial Accounting Services, Compliance, Payroll, Company Secretarial, CFO Services, and Staffing Services to small, medium and large organizations since 2007. With expertise in various industries and years of experience we bring you the deep insights that help your company to sustain, grow and expand in a rapidly changing legal landscape.