Wage Redefined, Pay Reduced
Outlook Money|April 2021
Introduction of the new wage code from April 1 is likely to affect take-home salary for employees across public and private sectors but ensure a better retirement package
Vishav

When all things normal don a new look, why won’t the good-old systems of basic personal finance do the same?

With the unfolding of the new financial year, the very technical definition of ‘wages’ gets a new look and form in sync with the restructured labour laws. The new Wage Code Act comes into effect on April 1. Passed in Parliament in 2019, it aims to rationalise dozens of central labour laws and unify them into a single code.

The legislation will also directly impact the salary structure of private sector employees and their take-home pay. Before we go into how your salary may be affected, let’s find out what wages mean according to the new code.

The Code on Wages, 2019 says that wages would include all remuneration whether by way of salaries, allowances or otherwise, and basic pay, dearness allowance and retaining allowance. The code specifically excludes from the definition of wages components like bonus, housing allowance, pension and provident fund (PF) contributions by the employer, conveyance and travel allowance, overtime allowance, gratuity, retrenchment compensation and commissions.

Under the new code, it is mandatory that the wages make up at least 50 per cent of the employee’s cost to company (CTC). All other payments, apart from basic pay, dearness allowance and retaining allowance, cannot exceed half of the total renumeration that the employee receives. And if they do exceed 50 per cent of the CTC in aggregate, which is the case for a large section of private sector employees, the extra amount by which it exceeds the threshold would be added to the wages.

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