The new labour code rules were supposed to be implemented from April 1, but the Centre has deferred it for the time being. The delay has been caused as several states are yet to finalise rules for the implementation of relevant rules under the Code of Wages, 2019.
It is unlikely that the new wage code rules will be implemented soon as businesses are facing operational uncertainties amid the second wave of the Covid-19 pandemic.
Companies who were worried about the new rules under the new Labour Code will get more time to realign their employee salary structures due to the delay. It also means that the take-home salaries of employees will not be impacted for now.
According to a recent Times of India report, states like Uttar Pradesh, Madhya Pradesh, Haryana and Uttarakhand have only circulated draft rules for two codes under the new law, while Karnataka has circulated draft rules for one code. Jammu and Kashmir is the only state that has finalised its rules.
The labour ministry had earlier planned to implement four labour codes — industrial relations, wages, social security and occupational health safety and working conditions — from April 1.
However, the new provisions under the Labour Code can come into effect only when states finalise their drafts.
INDIA INC REQUESTS EXTENSION
The second wave of the Covid-19 pandemic has disrupted the operations of several companies and implementation of some plans have been put on hold. It has increased business uncertainty for some companies again.
In view of the operational uncertainties, companies have requested the government to relax the 50 per cent mandatory cap on the allowance component of wages, according to an Economic Times Report.
Companies have said that the laws under the new labour code wages will hit them financially. Several industry associations have also reached out to states seeking relaxation in provisions mandated under the wage code for establishments.
The uncertainty arising from rising Covid-19 cases in the country could be another reason why the implementation of the new labour codes has been delayed by states.
LABOUR CODE RULES EXPLAINED
The most prominent rule under the new Labour Code is the mandate to cap employee salary allowances at 50 per cent of CTC (cost-to-company). This means the basic salary of an employee has to be at least 50 per cent of CTC.
As soon as the new wage code rules come into effect, employers will be required to change the employee compensation structure to accommodate the provisions. At present, most employers do not give a 50 per cent salary as basic pay to employees.
While there are some doubts about the new legal provisions, changes that employees can expect include higher post-retirement benefits due to increased PF compensation.
However, employees can expect a decline in take-home salaries each month due to the new rules. As per the provisions under the Code of Wages, 2019, the remuneration for employees will include three major components — basic pay, dearness allowance (for government employees) and retention payment.
It may be noted that the new wage code does not include bonuses, pension and conveyance allowance, HRA, housing benefits, overtime, gratuity, commission and retrenchment compensation.
Simply put, employees will get better social security benefits under the new wage code, but take-home salaries will reduce marginally. Employees with lower basic pay will benefit from the new wage code in comparison to high-income earners.