Gratuity, PF may rise under wage code

According to the draft rules, wages for the purpose of calculation of gratuity and provident fund contributions will have to be at least 50% of employees’ total pay. To comply with this rule, 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.

Employees are likely to get higher gratuity payments and employers’ contribution to their retirement corpus may also rise, but workers should brace for a cut in their take-home pays once the government notifies draft rules under the Code on Wages 2019.

Some experts said that most companies in the formal sector are already abiding by this rule related to PF contribution. (HT file photo. Representative image)

According to the draft rules, wages for the purpose of calculation of gratuity and provident fund contributions will have to be at least 50% of employees’ total pay. To comply with this rule, 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 labour code indicates that if the ‘wages’ bucket falls below 50% of the remuneration, then some portion of components excluded from the ‘wages’ bucket will be added to it so that this bucket becomes at least 50% of the remuneration for the purpose of calculating different payments such as social security contributions, gratuity, leave encashment, etc,” said Anshul Prakash, partner (employment labour and benefits) at Khaitan & Co.

The government will notify the final rules of the Code on Wages, which was approved by the Parliament last year, after taking into consideration the comments from public. Some experts said that most companies in the formal sector are already abiding by this rule related to PF contribution.