Take-home salary for Indian workers to fall from April 2021, but PF and gratuity will likely rise

As per the draft rules of the Code of Wages, 2019, the basic salary component, which is used to calculate gratuity and provident fund contributions, have to be at least 50 percent of an employees' total pay or compensation

FP Staff December 09, 2020 22:58:18 IST
Take-home salary for Indian workers to fall from April 2021, but PF and gratuity will likely rise

Representational image. Reuters

The take-home salary for most Indian workers is set to fall from April 2021 while savings towards provident fund, and gratuity earnings may rise once the govt notifies the rules to implement the provisions of the Code of Wages, 2019, according to several media reports.

According to a report in LiveMint.com, the draft rules of the Code of Wages 2019 state that "wages for the purpose of calculation of gratuity and provident fund contributions will have to be at least 50 percent of employees' total pay or compensation".

What this also means is that the allowance component cannot exceed 50 percent of the total salary or compensation.

So, to comply with the new rules "employers will have to increase the basic pay component of salaries, leading to a proportional increase in gratuity payments and employees’ contribution to the provident fund", the article added.

Once the Code of Wages 2019 come to effect, the amount contributed towards provident fund and gratuity will increase. However, companies are likely to introduce a proportional cut in the allowance component of salaries to balance it out.

According to a report in NDTV, the Code of Wages 2019 is likely to impact private employees the most as most private companies "prefer to set the non-allowance part of the total compensation less than 50 percent and the allowance portion higher".

The Code on Wages Bill, 2019, seeks to amend and consolidate laws relating to wages, bonus and matters connected therewith. It was passed in Rajya Sabha on 2 August, 2019. Lok Sabha passed the bill on 30 July, 2019.

The Code will subsume four labour laws: Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act and Equal Remuneration Act. After its enactment, all these four Acts would be repealed.

According to an article in The Free Press Journal, the govt intends to implement the Code of Wages 2019 from 1 April, 2021.

Union Labour and Employment Secretary Apurva Chandra said in October that the government has begun the process of framing the rules, the report added.

A law comes into force after notification of rules. Initially, draft rules under a law are notified with a stipulated time period (45 days) to receive feedback. Thereafter, these rules are finalised and implemented for bringing the law into force.

With inputs from PTI

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