InvestorQ : What is the new wage code 2019 and going to be effective from 1st April 2021?
tanvi Patel made post

What is the new wage code 2019 and going to be effective from 1st April 2021?

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Ishita Jain answered.
5 months ago
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The Centre has come out with new compensation rules as part of the Code on Wages passed by the parliament last year. The said rules become effective from April 2021.

According to the New-Wage Code 2019, to calculate the benefits such as gratuity, provident fund, and retrenchment compensation, etc. of employees at least 50 percent of gross remuneration should form the basis for such calculation, where the sum of basic salary and other fixed allowances is less than 50 percent of the total compensation. This simply means, allowances cannot be more than 50 percent of the total compensation to the employees. Therefore, from April 2021, the basic pay (basic pay + dearness allowance) will have to be more than or equal to 50 percent of the total pay.

Changes in the new act:
The wage code shall be a part of four labour codes that resulted after merging 29 out of 44 central government labour laws. So, the calculation of an employee’s provident fund will be as per the new definition of wages as per the new Code of Wages, 2019. In general, parlance, to limit the impact of EPF contribution, most of the employers restructure salary in such a way that employee’s basic pay remains low where the allowances remain substantially higher.

The benefit to an employee:
Though the new code will reduce the take-home salary for the employees, they will benefit from the code in long run as the total savings in the form of PF, etc. will increase. Since the revision will lead to higher Provident Fund contribution.

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