What is new wage code / bill and how does it impact you in 2021?

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What is new wage code and how does it impact you in 2021?

The new wage code / new labour code on wages is hot topic for most of the private sector employees recently as it brings in new rules and regulations for payment of wages for employees. For far too long the Indian companies are exploiting the relaxed wage regulations and create a CTC structure which is always in favour of the employer.

The new wage code has brought regulations which is seen as employee friendly and stops companies exploiting the labour laws!

New wage code 2021
New wage code 2021

In this article; Let’s look at what is new wage code and how does it impact you in 2021.

What is new wage code?

In 2019; The govt of India brought a gazetted notification named as THE CODE ON WAGES, 2019 . The THE CODE ON WAGES, 2019 covers various topics starting from the rules around payment of wages, working hours of employees, defining permissible working days, rules on payment of overtime working hours etc.

Lets’s look at the most important parts of the THE CODE ON WAGES, 2019

Wage definition

The wage definition was a grey area for far too long; this helped employers to take advantage of ambiguous rules and create CTC structure which helped company underpaying most of its staff.

Under the THE CODE ON WAGES, 2019 the wage definition is clear and companies can no longer have dodgy practices. Under the new wage definition , the new wage definition is as follow –

wages” means all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes —

  • (i) basic pay;
  • (ii) dearness allowance; and
  • (iii) retaining allowance, if any

but does not include –

  • (a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;
  • (b) the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government;
  • (c) any contribution paid by the employer to any pension or provident
  • fund, and the interest which may have accrued thereon;
  • (d) any conveyance allowance or the value of any travelling concession;
  • (e) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment;
  • (f) house rent allowance;
  • (g) remuneration payable under any award or settlement between the parties or order of a court or Tribunal;
  • (h) any overtime allowance;
  • (i) any commission payable to the employee;
  • (j) any gratuity payable on the termination of employment;
  • (k) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment:

Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half, or such other per cent. as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the percent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause:

Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g) and (h) shall be taken for computation of wage.

Explanation – Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen per cent. of the total wages payable to him, shall be deemed to form part of the wages of such employee.

When the new wage code kicks in, employers have to pay at least 50 per cent of an employee’s CTC as basic pay.

Wondering what will be impact of new wage code on your taxes? Have a look at – income tax exemptions for salaried employees

Empowering Women along with Non-discrimination

The THE CODE ON WAGES, 2019 has special focus on empowering women and encourage non-discrimination of any nature. Here is what the notification says –

(1) There shall be no discrimination in an establishment or any unit thereof among employees on the ground of gender in matters relating to wages by the same employer, in respect of the same work or work of a similar nature done by any employee.

(2) No employer shall
(i) for the purposes of complying with the provisions of sub-section (1), reduce the rate of wages of any employee; and
(ii) make any discrimination on the ground of sex while recruiting any employee for the same work or work of similar nature and in the conditions of employment, except where the employment of women in such work is prohibited or restricted by or under any law for the time being in force.

Flexible Working Hours

With its new THE CODE ON WAGES, 2019 the government is seen encouraging a 4-day-week work policy fixing the total working hours a week to 48.

The employees will be allowed to choose between three shifts, including

  • 4-days a week wherein they’ll work for 12 hours a day.
  • 5-days a week wherein they’ll work 9.5 hours a day.
  • and 6-days a week working 8 hours a day.

Thus, employees will have the advantage of choosing the work culture they prefer as per their requirements.

Furthermore, employees will be paid twice their pay in case of overtime.

Download new wage code Gazette notification PDF

Download the new wage code Gazette notification here –

FAQs on new wage code

When will the new wage code implemented?

The new wage code was expected to be implemented from FY 21-22 starting 1st April 2021 but it has been decided to postpone the implementation as of now and the new dates are not published by Govt of India.

Is the new wage code applicable for all companies?

Yes the new wage code is applicable for all companies including public and private sector companies .

Is the new wage code applicable for IT / Software companies?

Yes, new wage code is applicable for IT / Software companies.

What is the impact of new wage code on employees?

After new wage code the take home salary of employees may go down as the contribution to PF and gratuity will increase.

Since the provident fund is based on the basic salary, the PF will increase with the increase in the basic salary, which means that there will be a cut in the take-home salary or in-hand salary.

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