Rollout of New labour codes likely in October; Gratuity, PF contribution may rise

New Delhi, July 30: The four labour codes- code on wages, industrial relations, social security and occupational safety & health- likely to come into force from October as the Centre is now keen to go ahead with the implementation of these laws.

Once the wages code comes into force, there there will be several major changes for the salaried employees. However, there is also a discussion that the basic minimum salary of the employees may be increased.

The labour ministry had envisaged implementing the four codes on industrial relations, wages, social security and occupational health safety & working conditions from April 1, 2021. These four labour codes will rationalise 44 central labour laws.

According to the reports, some states had already circulated the draft rules. These states are Uttar Pradesh, Bihar, Madhya Pradesh, Haryana, Odisha, Punjab, Gujarat, Karnataka and Uttarakhand.

PF, gratuity to increase

This also means that there will be a consequent rise in gratuity and PF contribution of the employee. Hence, while the take home pay of the employees may be reduced, the Gratuity and PF component may rise.

The new wage code will also be applicable to unorganized sector employees. The rules related to salary and bonus will change and the salary of employees working in every industry and sector will be equal.

Increase in year holidays

Employees' earned leave could increase from 240 to 300. Several provisions were discussed between representatives of the Labour Ministry, the Labour Union and the industry over the change in the Labour Code. The employees had demanded an increase in the Earned Leave of employees from 240 to 300.

Minimum wages for workers

Under the new wages code, allowances are capped at 50 per cent. This means half of the gross pay of an employee would be basic wages. Provident fund contribution is calculated as a percentage of basic wage, which includes basic pay and dearness allowance.

The employers have been splitting wages into numerous allowances to keep basic wages low to reduce provident fund and income tax outgo. The new wages code provides for provident fund contribution as a prescribed proportion of 50 per cent of gross pay.

PF liability of companies to rise

After the implementation of new codes, the take-home pay of employees would reduce while provident fund liability of employers would increase in many cases.

Once implemented, employers would have to restructure salaries of their employees as per the new code on wages.

Improve ease of doing business

Besides, the new industrial relation code would also improve ease of doing business by allowing firms with up to 300 workers to go ahead for lay-offs, retrenchment and closure without government permission.

At present all firms with up to 100 employees are exempted from government permission for lay-off, retrenchment and closure.

The labour code on wages was passed in August 2019, Parliament approved three other codes - on industrial relations, social security and occupational safety & health - on September 23 last year. The Centre had earlier put on hold the original plan to roll out the codes from April 1, 2021, citing the dithering displayed by several states.