The all-new Wage Code is finally here! It was well-known for a while that a new improved version of the Wage Code was anvil since it was first announced in the Union Budget-2021. It was to be implemented starting July 2022 but has been delayed for some reasons.
However, employees and co employers both need to know the provisions of the New Wage Code and prepare themselves so that by the time it gets implemented, both parties are ready for it. Here is all you need to know about new wage code:
Why is the New Wage Code Being Introduced?
Currently, India has about 29 sets of labour laws. It is extremely difficult for both employees and employers to be compliant with all 29 of them. The new Wage Code aims to reduce this compliance effort by simplifying these laws and grouping them under just 4 different headings namely; Industrial Relations Code, Social Security Code, Occupational Safety, Health & Working Conditions Code and the Wage Code.
The new Wage Code is being introduced keeping in mind the future trends in the labour market. At the same time, the new Wage Code aims to address the issue of minimum wages and the welfare of workers in the unorganised sector too. The new Wage Code also aims to bring entities like self-employed or migrant labourers under the ambit of the legislation.
It can be safely said that a new Wage Code was definitely the need of the hour as working conditions have changed drastically in India with the advent of technology. Over the past few years, it was experienced that the current provisions were falling short in meeting the fast-changing ground realities.
What are the Changes Proposed in the Payroll Processing?
One of the most significant changes proposed in the new Wage Code is in the definition of salary. The Code suggests that the basic salary of any employee cannot be less than 50% of the CTC. Besides this, there will be changes in each of the following heads:
- Increased PF Contributions –
Currently, the PF contribution stands at 12% of the basic Salary. But if the basic salary changes to suit the new Wage Code, the value of PF contribution too will change.
- Gratuity -
Gratuity is currently a part of the Gross Salary and becomes payable only when an employee completes 5 years of continuous service. But the new Wage Code reduces this limit to just 1 year.
- Working Hours-
While there is no change in the working hours per week (48 hours), the new Wage Code allows for increasing the working hours per day from 9 to 12 hours. For instance, organisations can now allow for a 4-day workweek by increasing the daily working hours to 12 so that the employees can still register 48 hours every week. This is in keeping in mind the new 4-day workweek concept that is trending outside India.
How Will it Impact Take-Home Salaries?
Today, 30–40% of the salary paid consists of Basic Salary while the rest consists of allowances many of which are aimed to reduce the tax burden. But if the basic salary increases, then such tax-friendly allowances are likely to be reduced. Also, as PF is tied to the Basic Salary, its value is likely to increase. However, as of now, it seems that in all possibilities, the take-home salary for employees may dip a bit, but their long-term savings will increase substantially.
How Will it Impact the Employer?
The new Wage Code is aimed to make life easier for employers, especially for those involved in payroll processing. Here is how this would happen:
- Clarity on Wages
Currently, there are 12 different definitions of the term ‘wage’. The biggest positive change proposed by the new Wage Code is unifying all 12 into a single definition. The new Wage Code will remove the confusion on what is ‘included’ and what is ‘excluded’ from wages.
- Changes in Salary Slip
The changes in the wage structure need to reflect in the salary slip the moment the new Wage Code becomes effective. This may increase the workload of the Payroll processing team during the transition.
- Wider Coverage
Currently, only those employees who earn remuneration above a particular limit are covered under labour laws. The new Wage Code removes such restrictions and even allows easier hiring of temp staff or freelancers. Not just that, it even provides clarity on the remuneration paid to such entities.
- Quicker F&F
The new Wage Code proposes that irrespective of the reason for leaving, every employee needs to be paid his wages within two days of the last working day. This will force employers to introduce efficiency in their payroll processing, but also benefit employees too!
The new Wage Code sure is a very forward-looking one and is likely to make India compete better in the fast-changing labour market worldwide. However, the HR team needs to have a deeper understanding of the new provisions. Since both employers and employees are still struggling to understand the changes and more importantly to implement those changes in their payroll processing system, the time is right to approach professional payroll processing service providers like Paysquare.
Professional payroll processing service providers like Paysquare have not just understood the provisions of the new Wage Code, but also have the necessary technology infrastructure and experts on board ready to implement it at a moment’s notice.
Paysquare’s infrastructure includes a team of multi-industry experts who are well supported by a robust technology infrastructure. Together, Paysquare can work with the HR team of any organisation to make sure that it becomes compliant as soon as possible. Also, years of experience as an outsourced payroll processing service provider for many industrial sectors and reputed organisations therein gives Paysquare the unique advantage to make sure that the transition is smooth.
The new Wage Code will be implemented anytime now. Rather than guessing what to do and how to do it, it makes sense to approach Paysquare and make your organisation ready for tomorrow!