How the New Wage Rules will impact salaried persons and employers

Government has come out with a new and universal definition of ‘wages’ to bring in parity amongst the four new Labour Codes as against the varied definitions under the extant laws. The new Labour Codes are likely to be effective from April 1, 2021 one of the most pertinent amendment introduced in the four new Labour Codes is the standardization of the definition of ‘wages’.

Currently, multiple definitions have been specified in the different statutes for the purpose of calculation of Provident Fund (PF) contribution, gratuity liability, statutory bonus payment, maternity benefit, etc. which has led to practical challenges in the administration of salary structures as well as payments, contributions, and deductions to be made.

Further, the interpretation of the terms wages/ basic wages etc. has been an ongoing contentious issue for employers. Hence, an attempt seems to have been made for harmonization and simplification in defining the very foundation of calculation of quantum and eligibility of various social security related benefits.

 

The new definition now has three parts to it —

• Inclusion part
• Specified exclusions and
• Conditions which limit the quantum of exclusions

The new definition is an inclusive definition and is extremely wide in its coverage:

Practically, it could include almost all of the components of the compensation mix of an organization, specific inclusions are

• BASIC PAY
• DEARNESS ALLOWANCE
• RETAINING ALLOWANCE, if any

There is an exhaustive list of components which are specifically excluded under the definition.

• STATUTORY BONUS
• SUM PAID TO DEFRAY SPECIAL EXPENSES
• COMMISSION
• VALUE OF HOUSE ACCOMODATION: WATER/LIGHT/MEDICAL ATTENDANCE/AMENITY
• HOUSE RENT ALLOWANCE
• EMPLOYER CONTRIBUTION TO PF/PENSION ANE/OR INTEREST ACCRUED THEREON
• REMUNERATION PAYABLE UNDER AWARD, and/or, SETTLEMENT
• CONVEYANCE/TRAVEL ALLOWANCE
• OVERTIME ALLOWANCE

 

The specified exclusions, however, shall not exceed 50 percent of all remuneration, and in the event of exceeding, such excess amount shall be deemed as remuneration and will be considered as “wages”.

• GRATUITY PAYABLE ON TERMNINATION
• RETRENCHMENT COMPENSATION
• RETIRAL/EX-GRATIA
• In case an employee is given remuneration in kind, the value of such remuneration up to 15% of total wages payable to him shall also be deemed to form part of wages of such employe

Thus, under the new definition, 50 percent of total emoluments will now be regarded as wages even where the specified exclusions, such as HRA, overtime, commission, conveyance, employer contribution to PF, etc., are greater than 50 percent of such total. Besides this, the new Code also provides for gender neutrality, early payment of salary, guidance towards working hours, days of rest, payment of overtime, minimum wages, statutory bonus, etc.

It is important to note that some of the wage thresholds for the coverage of employees under existing social security benefit schemes such as Bonus, PF, Employee State Insurance (ESI) have not yet been notified by the Appropriate Government in the new Codes.

APPLICABILITY

•  No wages threshold as against INR 24,000 in the current Payment of Wages Act
•  All establishments covered as against specified industries/ factories under the current

 

WAGES PREAMBLE

Conveyance allowance/ travelling concession, HRA, remuneration payable under any award or settlement or order of Court/Tribunal, any overtime allowance will be included as Wages for this chapter - specific exception to the exclusion

 

DEDUCTION(S)

Permissible deductions are specified – aggregate deductions cannot exceed 50% - includes PF and Pension contributions, tax withholdings, advances, fines

 

WAGES PAYMENT TIMELINE

Daily wage period – At the end of the shift

• Weekly wage period – On last working day of the week
• Fortnightly wage period – by end of the second day after expiry of fortnight
• Monthly wage period – by seventh day of the succeeding month

 

Final settlement for removal, resignation, dismissal, retrenchment

Extremely short timeline of 2 working days

 

BONUS PROVISON(S)

APPLICABLE FOR ESTABLISHMENTS WITH 20 OR MORE EMPLOYEES

MINIMUM WAGES LEVEL 8.33%, MAXIMUM LEVEL 20%

WAGES THRESHHOLD TO BE NOTIFIED

LIABILITY FOR BONUS PAYMENT OF PRINCIPAL EMPLOYER, IF, CONTRACTOR DEFAULTS

 

 

EMPLOYER OBLIGATION(S)

• Ensuring payment of minimum and overtime wages
• Payment of wages within the timelines prescribed – for monthly wage period – before seventh of the succeeding month, for wages paid on a fortnightly basis – by second day after end of the fortnight; for dismissed/ resigned employees wages to be settled within 2 working days:
• Adhering to the limits specified for deductions from wages
• Complying with the limits relating to working hours and provide days of rest as specified

 

RECORD(S)/REGISTER(S)/NOTICE DISPLAY/PAYMENT OF DUES

• Maintenance of employee registers in prescribed form electronically/ otherwise
• Issuance of wage slip in prescribed form and manner to each employee
• Display of notice on the notice board at prominent place of the establishment
• In death cases, dues to be paid to the person nominated or to be deposited with the specified authority (being deputy chief labour commissioner (central)) within 3 months/ 6 months

 

Whatever be the case, this change in definition of wages will have an impact both on employers and employees. This could potentially lead to an increase in the liability of payment of contribution towards PF, ESI and various other benefits. There may also be increase in the coverage of employees in the organization and many of the currently excluded employees may now come under the purview of such labour laws/ social security benefits.

 

Due to the wide encompassing definition of wages, the liability of gratuity/ leave encashment etc. is also potentially likely to see an upward trend. While the higher contributions would be beneficial from a social security perspective, however, as an immediate consequence, it would also increase the financial burden on the employer through increase in employee’s salary cost. It is interesting to note that on account of employee contribution being mandatory in a few schemes like PF etc., there may also be a significant impact on the net take home income for the employees.

 

While the Wage Code aims to benefit the worker group at large, the salaried employee class may have mixed feelings with a likely cut in their take home and increased retirals.

 

The new definition of wage could expand the base for computing the retiral benefits like gratuity, PF, and other benefits like leave encashment, etc. As employers are set to rejig the salary structure and factor in the increased retiral costs into the salary package under Cost to Company (CTC) model, the take home pay could be impacted. While this may reduce take home pay in the immediate go, it will compensate employees with higher corpus in the retiral funds in the long run.

 

• Employees joining an organization during the month will now receive salary by the 7^th of succeeding month without having to wait until the next pay cycle. Also, employees leaving an organization would be able to receive salary within two working days from the date of resignation
• Employees are entitled to a substituted rest day in the event they are required or allowed to work on the rest day along with a pay calculated at double the regular wages
• Employees will be assured of non discrimination on the ground of gender at the time of recruitment and also for the purposes of pay for work of same or similar nature
• Deduction from the salary like recovery of housing rent, loans, or towards absence from duty, or fines, etc. cannot exceed 50% of wages
• Thus, as the Wage Code regulates the wages and bonus payments in all employments and has a broad based applicability, it is important for both employers and employees to understand the nuances and impact of the new law
• Gratuity will be payable to fixed-term employees, irrespective of whether they complete five years of employment
• The new codes may also allow an employee to avail of leave encashment at the end of every year
• The labour codes, however, do not contain a provision requiring employers to change their CTC (cost to company) structure.

 

  

CENTRAL WAGES RULES, 2020

MANNERS AND NORMS FOR CALCULATION OF MINIMUM WAGES

• Broadly, 6 criteria have been prescribed
• Standard working class family to comprise of 4 members equivalent to 3 adult consumption units
• Yardsticks for food, clothing, shelter specified
• Expenses on utility, healthcare, education, recreation etc. Factored
• CG to divide the concerned geographical area into 3 viz. metropolitan, nonmetropolitan and rural area
• CG to also categories employee occupations into 4 viz. unskilled, semi-skilled, skilled and highly skilled
• Occupations specified in Schedule E to the rules, with a provision for modification/ addition/ deletion therein.

REVISION OF DA

• The rules specify COLA and cash value of concessions to be computed once before April 01 and October 01 every year
• Would impact DA payable to the employees

WORKING HOURS AND REST DAY

• Normal working day to comprise of 8 hours of work with an aggregate rest period of 1 hour
• Work day inclusive of rest intervals not to spread over more than 12 hours on any day
• Employee to be allowed a day of rest every week
• Preferred rest day to be Sunday – but employer can fix any other day as a weekly rest day
• Substituted rest day if employee works on stipulated day of rest.
• For working on a rest day employee to be paid at overtime rates and for substituted rest day at normal rate

DUES AND CLAIMS PAYMENT

• In death cases, dues to be paid to the person nominated or to be deposited with the specified authority (being deputy chief labour commissioner (central)) within 3 / 6 months
• Rules prescribe a maximum timeframe of seven years for disbursement of dues
• Possible to file a combined application by employees for claiming dues