The New Wages Code Policy: Less in hand today, more when you retire

 

The New Wage code was passed by the parliament in 2019. It is expected to be enacted from April 2021 along with the three other labour laws approved in 2020. It makes a big change. It mandates that the basic pay of an employee has to constitute 50% of the Cost to Company (CTC).

Let me tell you the division of the CTC. It has two major parts. Part one is your basic pay along with regular allowances such as DA and the second part is other allowances based on case to case such as HRA, conveyance, overtime, etc. Your provident fund contribution has to be 12% of your basic pay. And the gratuity is also calculated on the last basic salary drawn which is basic pay + PA.

Now a lot of jobs had more allowances, and it was more than 60% of CTC. It is going to affect them and their take-home may reduce. But in the long run, the increased contribution to PF and gratuity will give you more when you leave the job.

It is going to affect the employer broadly. They have to increase their spending. They can choose not to match the contribution of the employee and pay the minimum. Most companies match it on account of goodwill.
Since the basic will increase, the gratuity will also increase.

Experts and opposition are stating that this is a bad time to bring it. There is a lot of question around the timing of implementation when people have been pandemic hit and the need for cash is more. On the other side, the officials say that they saw that a lot of people depend upon the PF and Gratuity, which they realised looking at a large number of withdrawals at this time, and they found the amount not adequate. Both the points sound fair to me.
But how I see it, is the govt is in a very bad state of the economy and the increased PF contribution will give the govt more money to use since the mandatory PF contribution goes to the govt and then they invest it where they want to.

The policy, however, will make sure there is security at the end of the job. India needed one policy that gives social security and then this will hopefully make sure they have one.