When will labour code changes reflect in salary slips?

Why December pay slip does not reflect laboutr code changes?

India’s new labour codes, consolidated under the Code on Wages, 2019, Industrial Relations Code, 2020, Code on Social Security, 2020 and Occupational Safety, Health and Working Conditions Code, 2020 , came into effect on November 21.

The most important and biggest change requires employers to ensure that at least 50 percent an employee’s cost to company (CTC) is counted as wage, which means the basic pay, plus dearness allowance and retaining allowance, must form the core of salary structure.

The impact of a higher wage base would be felt instantly. With wages rising, both employer contributions and employee deductions towards Employee Provident Fund (EPF) increase and gratuity, calculated on the last drawn basic pay, also goes up.

These higher statutory payouts strengthen long-term financial security but they may reduce an employee’s take-home salary.

This mandatory shift means many companies will need to rework salary structures and which leads to question: when will these changes reflect in your salary slips?

“Expected timeline is two-and-a-half to three months,” Kartik Narayan, CEO of the jobs marketplace Apna, said.

According to him, the central labour rules are still going through final formalities and once they are out, companies typically take another month or two to adjust payrolls.

“We don’t know that because the government is working with stakeholders and will get back in 45 days,” said Balasubramanian A, senior vice president at TeamLease Services.

There is no confirmation yet that the new wage structure will appear in pay slips for December, as the final notification is still awaited, experts said.

"Once the Labour Codes come into force, the 50% wage rule will apply to the overall CTC. Variable pay and bonuses payable under any law are to be included and discretionary ones are to be excluded. Companies may need to realign their salary structures once the rules are officially implemented," said Kuljeet Singh, Director Finance & Administration at Gi Group Holding.

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For employees whose basic pay was previously only 25-40 percent of CTC, their next salary cycles could look different.

The basic pay will likely be restructured, EPF and gratuity contributions may go up, and take-home may shrink a bit. But you will also get increased social security, better retirement savings and stronger statutory protection.