Explained: How will new wage code impact take-home pay

Though the Code of Wages was passed in December 2019, the government had held back its implementation since it wanted to implement it together with other three codes.

Most of those working in private companies are likely to see a cut in the their take-home salary from April after the new wage rules under the Code of Wages comes into effect. The Code of Wages was passed in December 2019.

The new wage code is expected to impact the salary structure. (Representative Photo)

The wage code will lead to increase in gratuity payments and employers’ contribution to their retirement corpus, which could lead to restructuring of salary structures.

According to the draft rules, wages for the purpose of calculation of gratuity and provident fund contributions will have to be at least 50 per cent 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.

Many private companies prefer to keep the allowances component higher and the basic salary lower. This will not be allowed under the new rules.

Though the Code of Wages was passed in December 2019, the government had held back its implementation since it wanted to implement it together with other three codes - on Industrial Relations, Social Security and Occupational Health Safety & Working Conditions.

The codes will play an important role in the year after the coronavirus pandemic which battered the economy last year. With the implementation of these four codes, the government wants to create a conducive environment for investors as well as to provide better social security to workers and protect their rights.

The labour codes would not only provide social security to organised sector employees but also to informal sector workers like gig and platform workers. This means that the entire workforce of over 50 crore in the country would get social security coverage under the new legal framework from April onwards.

Gig and platform workers are those who are not on the rolls of an organisation and they are not entitled to get various social security benefits.