How the new wage code may impact your take-home pay

A new wage code that comes into effect in April may lead to a salary restructure that reduces your take-home pay and increases gratuity and leave encashment.

The government has consolidated 29 central labour laws in four codes, and in turn, changed the definition of 'wages'. Under the new code, wages will be calculated with components including basic pay, dearness, retaining and special allowances, which must constitute at least 50 per cent of a person's total remuneration or CTC (Cost to Company).

Items like HRA, conveyance, bonus, overtime pay and commissions have been excluded from the definition. If these specifications exceed 50 per cent, the excess amount will be computed on 'wages', meaning higher pay for the employee.

The new code allows employees to encash leaves, and gratuity becomes mandatory for fixed-term employees irrespective of the five-year completion norm.

For people in the low-pay category, companies will have to revise salary structures to comply with the code. Contribution to PF, ESI, bonus and gratuity will go up.

For mid-salary range earners, the main impact will be felt in bonus, gratuity and superannuation payouts, while the high-salary earners will only see the impact on their gratuity.

In India, it is common to see basic salary in the range of 30 to 50 per cent of the gross and allowances and bonuses make up the rest.

Companies across India, still under stress due to the Covid-19 pandemic, may incur higher costs.

"Expenses will increase for fixed-term employment where gratuity becomes mandatory. For the high salary and mid-salary group, the cost implication will be lower. However, for the lower salary range group, the impact will be 25-30 per cent," Genius Consultants CMD R P Yadav told TOI.