The Implementation of the New-Wage Act

  • The new wage code is coming into effect from the new financial year, and under this code, the Provident Fund (PF) contribution of the employees may rise and as a result, the take-home salary will or may not decline.
  • The Cost to Company (CTC) has an impact on the basic salary or basic pay and allowances. The rules for the new wage code will be notified soon.
  • The employers and the employees would face the new change in the salary structure.  From the employer’s and the employees’ point of view, the change in the Wage Act leads to a complex situation if it gets implemented.
  • There is the possibility of the in-hand salary/take-home salary of employees to reduce, starting from 1st of April 2021.
  • The tax benefit is there on the provident fund (PF) of the employees as it is tax-free. And the pre-emption of wages of PF is very high by the Global Standards.
  • The new wage Code removes inessential provisions, provides a definition in a uniform manner, and reducing the amenabilities.
  • It aims to encourage transparency and responsibility in the implementation of labor laws, which is an important measure. 

The Four Major Labour Codes: –

  • Code on Wages, 2019
  • The Code on Wages, 2019 was passed in the Lok Sabha on 30th July 2019 and the Rajya Sabha passed it on 2nd August 2019. It was approved by the president on 8th August 2019.
  • In both the Organised and unorganized sectors, the regulation of the Code on Wages Act is applicable. The power to set the National Floor minimum wage is in the hands of the central Government. And the wages and allowances are well defined under this Code.
  • Occupational Safety, Health & Working Conditions Code, 2020
  • Occupational Safety, Health & Working Conditions Code, 2020 was passed in the Lok Sabha on 23rd July 2019. It was referred to the Standing Committee on 9th October 2019. The report of the Standing Committee is delayed further.
  • If there are 10 or more employees in a Company, then the Code on Occupational Safety, Health & Working Conditions is applicable.
  • In the Civil Court, hearing against matters related to this Code would not happen. The hearing of matter under this code would happen in the High Court.
  • Industrial Relations Code, 2020
  • Industrial Relations Code, 2020 was passed in the Lok Sabha on 28th November 2019. It was referred to the Standing Committee on 23rd December 2019. The Standing Committee has not submitted their report on this Code.
  • Industrial Relations Code, 2020 subsumes The Industrial Dispute act 1947, The Industrial Employment act 1946, and The Trade Unions Act 1926.
  • According to this Code, a mandatory notice of 14 days has to be provided before conducting a strikeout or lockout.
  • Code on Social Security, 2020 was passed by the Lok Sabha on 11th December 2019. It was referred to the Parliament Committee on 23rd December 2019
  • Code on Social Security, 2020 may subsume Maternity Benefit Act 1961, Provident Fund 1952, and Unorganized Worker’s Social Security Act 2008.
  • According to the Code of Social Security, the employees working on contract are entitled to receive gratuity even if they have not served the entity for continuous 5 years. Contractual employees and permanent employees, both are now liable to receive gratuity.
  • Contractual employees would be paid gratuity on a pro-rata basis.
  • There are 29 legislations included in the aforementioned labor codes. The understanding and explanation of the term wage are different under the given regulations.
  • For consolidation, simplification, and unification, introduction to these codes was done.
  • Uniformity in the definition of wages can be observed in all the regulations, thus it approves that all the regulations have a similar approach towards the wages of the employees.
  • The Code on Wages, 2019 is making certain changes to the definition of the remuneration of the employees when it comes to the calculation of PF & Gratuity.
  • According to this code, if the Basic Salary of employees is less than 50% of CTC then the CTC has to change and a new one should be framed because the PF has to be calculated on 50% of the CTC.
  • There is a Rs. 20 Lakh Gratuity Cap as per the Gratuity Act. It must be paid out and a Gratuity payout above that will be taxable. Anything above Rs. 20 Lakh is always considered taxable.  It depends upon the Company, whether they want to pay it or not.
  • Companies must have an insurance policy to shield against gratuity liability.
  • Companies that do not have a limit, they have 10-year senior employees and 50% is significantly going to impact the liability whereas other things remaining the same.

According to the components of CTC, the current wage code defines: –

  • Basic Pay,
  • Dearness Allowance
  • Retaining Allowance
  • And Other Components
  • Once the wage code is implemented, then the basic pay will be increased because other allowances cannot be more than 50%, and the employee’s contribution to PF will also increase and that is why it will have a negative impact on employees’ take-home salary.


The policymakers are working towards the detailing of the new wage code. This particular wage act is established to put aside the savings for tomorrow by putting in a higher amount of savings today. The Government ensures that the new wage code is going to provide more security and it will help to increase the retirement corpus.

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