Centre to soon implement new labour codes. Here's how it can affect your salary

As per the new labour codes, allowances are capped at 50 per cent, which implies that half of the salary would be basic wages and contribution to provident fund is calculated as a percentage of basic wage that involves the basic pay and dearness allowance (DA).

The Centre might soon implement new labour codes that will increase the provident fund liability of the companies and reduce the take-home pay of employees. The implementation of four labour codes, which will rationalise 44 central labour laws on industrial relations, wages, social security and occupational health safety and working conditions, was envisaged by the Union labour ministry to begin from April 1 of this year.

. The provident fund contribution is required to be a proportion of 50 per cent of gross pay under the new codes. (Stock image: Getty for representation)

However, the codes could not be implemented because many states were not able to notify rules under these codes in their jurisdiction. Under the Constitution of India, labour is a concurrent subject, hence both states and the Centre are required to notify rules to turn the codes into law in their respective jurisdiction.

Here's how the codes will change the pay structure:

1. As per the new codes, allowances are capped at 50 per cent, which implies that half of the salary would be basic wages and contribution to provident fund is calculated as a percentage of basic wage that involves the basic pay and dearness allowance (DA).

2. The provident fund contribution is required to be a proportion of 50 per cent of gross pay under the new codes.

3. This would result in the restructuring of the salaries as the new requirements under the codes will increase the provident fund liabilities on the employers. So far, the employers have been destructing wages into various allowances for the basic wages to be less to reduce the provident fund and income tax expenses of the company.

4. Moreover, the new industrial relation code also allows the companies with up to 300 workers for lay-offs, retrenchment and closure with government permission. Currently, the government has exempted all firms with up to 100 workers from permissions for lay-offs, retrenchment and closure.

Many states have not yet finalised the rules under the new codes but some like Uttar Pradesh, Bihar, Madhya Pradesh, Haryana, Odisha, Punjab, Gujarat, Karnataka and Uttarakhand have already circulated the draft rules, according to PTI.

"Many major states have not finalised the rules under four codes. Some states are in the process of finalising rules for the implementation of these laws. The central government cannot wait forever for states to firm up rules under these codes. Therefore it is planning to implement these codes in a couple of months as some time would have to be given to establishments or firms to align with new laws," PTI quoted a source as saying.