New Labor Code: Will your salary decrease or increase? Who will be affected by the new rules?
- In preparation for implementing the New Labor Code
- What do the new rules say?
- Who will benefit the most?
New Labor Code : The central government is preparing to implement the New Labor Code in the country soon. These new rules will lead to major changes in the working hours, holidays and most importantly ‘inhand salary’ of the employees. It is important to understand who exactly will benefit from these changes and whose budget will suffer.
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After the recent reforms in labor laws in India, all eyes are now on ‘salary slips’. The New Labor Code has completely changed the concept of ‘wages’. The most significant impact of this change is expected to be on the ‘hand wages’ of employees and their future savings. It is important to understand who exactly will benefit from these changes and whose budget will suffer.
What do the new rules say?
Now it has been mandated that the ‘basic pay’ of an employee should be at least 50 per cent of his ‘gross remuneration’. Hitherto, companies often kept the base salary low for various reasons; However, the share of elements like house rent allowance, transport allowance, bonus and special allowances would be more. As per the new rules, if the sum total of these various allowances exceeds 50 per cent of the gross remuneration, the excess will also be included in the basic pay. This increase in basic pay and dearness allowance will have an impact on the contribution towards provident fund and gratuity in turn.
According to a report by Bussiness, TeamLease Services Senior Vice President Balasubramaniam A. It has been mentioned that the actual benefit from this will depend on the current PF contribution of the employee and his current pay structure. If the basic pay is currently less than 50 percent of ‘CTC’, it will be increased as per the new rules; This will increase the accrual of PF and gratuity, but may result in a reduction in ‘pay in hand’. Employees whose basic pay is already 50 percent or more will not have any significant impact from this change. Conversely, if the base pay is currently much higher than 50 per cent and the company decides to keep it within the 50 per cent limit, then the ‘wages in hand’ may actually increase.
Who will benefit the most?
The most significant impact of these new rules will be on young professionals, who have just started their careers. According to Rishi Agrawal, CEO, TeamLease RegTech, the salary structure of early stage professionals is usually not optimized for tax savings and is fixed in nature. Although the increased PF contribution may initially reduce their take-home salary slightly, the long-term increase in their gratuity and provident fund will be a powerful tool for wealth creation. The effect of compound interest is most effective for this age group; This will enable them to build a large financial fund (corpus) till the time of retirement.
They can be shocked
This change can be somewhat challenging for mid-level and senior employees. Generally, a large part of senior employees’ pay is made up of ‘variable pay’ i.e. variable pay, incentives and other perks. According to expert Murali, “For high-income employees, especially those whose ‘variable pay’ accounts for a significant portion of their total remuneration, this change may lead to a short-term reduction in their ‘take-home salary’, as a larger portion of their total remuneration will now be included in their ‘Fixed Pay’.” With the increase in basic pay, the contribution to the Provident Fund (PF) of both the employee and the company will increase, thereby reducing the net amount in hand every month. However, the flip side of this is that the amount of ‘gratuity’ received on resignation or retirement will increase significantly.
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