From April, your take home salary could be reduced
A new rule by the Centre would mean that employees take a lesser portion of their salaries home, as a substantial chunk of their money would be sent to their retirement corpus. These changes would be driven by the Code on Wages, 2019, which looks into matters related to wages and bonuses. It's expected to come into effect from next financial year. Here's more.
The Code on Wages Bill got Parliament's nod last year
To note, the Code on Wages Bill, 2019, which was passed in Parliament last year, consolidates four existing labor laws — Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, and Equal Remuneration Act. Union Labor and Employment Secretary Apurva Chandra said in October that the government intends to enforce the new rules from April 1, 2021, reports FPJ.
What do the new rules dictate?
As per the draft rules, the contribution of gratuity and the provident fund has to be at least 50% of the employees' total pay. To follow this rule, employers will have to increase the basic pay of their employees to 50%. This will imply that the deductions will increase directly reducing the in-hand salaries. But on the brighter side, the retirement corpus will swell.
To follow government's rules, companies will have to restructure salaries
Payroll experts told Mint that companies, which contribute to the PF based on actual salary, will have to reshuffle their salary structures to fit into the new rules. Right now, employers and employees can choose to junk the PF option, if the basic pay of the latter is over Rs. 15,000. Employer and employees' contribution to PF can be limited to 12% of Rs. 15,000.
Most private companies reduce the non-allowance component of salaries
Most private companies keep the non-allowance part of the total salary at less than 50% and the allowance part higher. On the new development, Lohit Bhatia from business services provider Quess Corp., said, "The formal sector already carries many of these in their structured CTC break-ups, i.e. most employers (especially large formal ones) have basic at 50%, house rent allowance at 40-50% and then other special allowances."
