The four Labor Codes will not come into effect from April 1 as states are yet to finalize the related rules, meaning that there will be no change in the employees ‘in-house salaries and companies’ provident fund liability for now.
Once the Pay Code comes into force, there will be significant changes in the way employees calculate their base salary and provident fund.
From April 1, 2021, the Ministry of Labor envisaged the imposition of four codes on industrial relations, wages, social security and occupational health protection and working conditions. The Ministry had finalized the rules under four codes.
A source told PTI language, “Since the states have not finalized the rules under the four codes, the implementation of these laws is postponed.”
According to the source, some states had circulated draft rules. These states include Uttar Pradesh, Bihar, Madhya Pradesh, Haryana and Uttarakhand.
Since labor is a concurrent subject under the Constitution of India, both the Center and the States have to notify the rules under the Code to bring them under their jurisdiction.
Under the new pay code, allowances are capped at 50 percent. This means that the basic salary will be half of the gross salary of an employee.
The provident fund contribution is calculated as a percentage of the base wage, which includes the basic salary and dearness allowance.
Employers are dividing wages into several allowances to keep the basic wages down to reduce provident funds and income tax.
The new pay code provides for a fixed proportion of 50 percent of gross salary for provident fund contributions.
If the new codes come into force from 1 April, employees ‘home pay and employers’ provident fund liability will increase in many cases.
Now employers will get some more time to restructure their employees’ salaries according to the new code on pay.
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