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Know the technicalities of new wage code and how it affects your salary

The new wage code will come into effect from April 2021, know what is going to change


The in-hand salary all of the salaried person who have EPFO accounts is going to change from next financial year. This will happen because of the new wage rules of Centre, which was passed in Parliament last year. The Wage Code 2019 is an attempt to simplify the various regulations related to wages with a promise of easier implementation.


What is Wage Code

As per the new wage definition under Wage Code 2019, at least 50 per cent of the gross remuneration should form the basis to calculate benefits such as provident fund, gratuity and retrenchment. It states that allowances cannot be more than 50 per cent of the total CTC. As a result, the basic pay which also includes DA in the case of government jobs, will have to be 50 per cent more of the total CTC from the financial year 2021.


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All the changes that will occur

The new wage code emerged from the merger of 29 central government labour laws. The existing acts that governed the EPF (Employee Provident Fund) and gratuity will now become a part of social security. However, as per the new Code of Wages 2019, the calculation of EPF will depend on the new definition of wages.

Currently, all the employees and employers contribute 12 per cent of the total salary each in the EPF. The employer takes basic pay and dearness allowance as the measurement to contribute its part. But many employers prefer to restructure the salary in such a way that your basic pay remains low and allowances are higher to limit the impact of EPF contribution.

Presently, most of the employers keep the non-allowance part of employee’s CTC (Cost to company) less than 50 per cent. However, the new wage code 2019 will make the employers restructure the pay packages of its employees by increasing the basic pay to meet the new requirements. It says that if the salary exclusions are more than 50 per cent of the total salary- then the excess over 50 per cent mark must be included in the total CTC. Then, EPF will be calculated on this basis.

The new rule will result in a reduction in take-home pay as PF contribution of most of the employees will go up to maintain the 50 per cent ration, hence the in-hand salary of people will decrease.


Are there benefits for employees?

The wage code 2019 is expected to benefit employees in the longer win as the sum deducted towards post-retirement gratuity and social security kitty will increase. However, there are many things which are still not clear. As soon as the first salary is credited after the new wage, we will have more clarity.


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