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Thursday, 11 February 2021

Allowances cannot be kept more than 50%, more basics have to be kept Government may implement new definition of pay

Allowances cannot be kept more than 50%, more basics have to be kept
 Government may implement new definition of pay: The government has combined six central labor laws to create six new codes, including the Wage-Social Security Code.

New delhi date.  10: Benefit plans like Graduation and Leave Encashment may require companies to review their salary increment budgets with a later date and additional PF contributions.  If, however, the government applies the new definition of wage, the PF contribution will increase.  Previously PF was calculated only on Basic Salary, DA and other special allowances.  Under the new rules, all allowances cannot be more than 50 per cent of the total salary, i.e., from April 2021, the share of the basic salary in the total salary will have to be 50 per cent or more.  The new wage rule will see a major change in the salary structure.

The government has combined six central labor laws to create nine new codes, including the Wage and Social Security codes.  Vikram Shroff, Head (HR Law) at Nishith Desai Associates, said some new concepts have been introduced in the Labor Codes, but the biggest change is that the definition of wage has been expanded.  That said, the definition is the same across all four Labor Codes.  It will have a far-reaching effect on workers and employers.  This can have a huge impact on the salary in the hands of the employee.


 The new codes include basic pay, retaining and special allowances in Wage.  HRA, convention, bonus, overtime allowance and commissions are excluded from it.  Under the new rule, all allowances will not exceed 50% of the total salary.  If it is more than 50%, the extra amount will be considered as part of the wage.  For example, earlier the graduation was calculated according to the basic salary i.e. basic salary, but now it will be calculated according to the wage.  This can increase the employer's pay and increase the employer's costs.  Compensation structure in most of the industries in India includes basic salary and allowance.  Basic celery accounts for 20 to 30 percent of gross.  Experts say that some companies want to increase the basic pay remuneration to 50 per cent, with the rest limited to 50 per cent.

 Nitin Sethi, CEO of Aon India, said that if a company's basic salary is 20 to 30 per cent of the total compensation, its wage bill would go up by 8 to 10 per cent.  Companies that account for 50 per cent of basic salary gross will have their wage bill increased by 3 to 4 per cent.


 "If the basic pay-to-gross ratio is around 50 per cent and is increased to 50 per cent after the Wage Code comes into force, there could be a double burden on companies," said Vishal Grover, a practice litter at Aon India.  At the same time, fixed term employees will have to be given graduation, even if they have not completed 3 years of service.  The new code allows employees to take advantage of leave encashment at the end of each year.  RP Yadav, CMD, Genius Consultants, said the cost on fixed-term employees would go up as graduation would become mandatory.  High salary and mid salary group will have less burden.  But the company's costs in the Lower Salary Range Group will increase by 5 to 20 per cent, he said, adding that this could affect increments this year.

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