This article on ‘New Wage Code 2022: All You Need To Know!‘ was written by an intern at Legal Upanishad.
This article assists to know about the pros and cons of the new wage code 2022 by understanding the new rules and regulations that are implemented under the new code. The changes that are going to happen to the existing laws and work environment. Let us discuss the areas where changes were brought down and the impact they can constitute also with the role of the state governments to put on their opinion and changes with the help of required guidelines.
Labour laws in India cover a very vast area of analysis and are required to amend every frequent day. Labour laws in India cover areas like Minimum wages, Factories, Industries, the safety of the employees and also the work environment. All the laws have a huge impact on the work and satisfaction of the employee and the employer as well. These are the laws that are existing over the years and the rights we access under those laws till now are related to the independence movement of India. The only issue with these laws is they do not constitute single legislation where it could be a way that is easily understandable.
Hence it has become a need to avoid multiple legislations where the scope for wider and unified codes would arise. The recent Code that has been by introduced the central government focuses on 4 different areas that are Social Security Code, Occupational Safety and Health code, Working Conditions Code, and the New wage code.
This article has been written based on doctrinal research through secondary resources. The data collection has been made by journals, newspaper articles, e-sources and books. Apparently, on the data collection and analysis, the study concludes by stating the changes brought down to the legislation and the advantages and disadvantages that are arising in the code.
What is New Wage Code?
The idea of a new wage code has been introduced during the union budget 2021 proceedings in the parliament. It aims to simplify the rules and regulations provided and bring in a unified code to avoid multiple legislations. The bill for the wage code was first put on motion during the year 2019. There are various changes that have come up in the implementation of this code.
A major change is made to define the term ‘wage’ in another way. On interpreting the definition of wage under the new code it is understood that it must include any sort of allowances may t be for food, house rent, overtime etc, whichever are expressed in terms of money during the course of the employment.
The allowance shall not exceed 50% of the total remuneration of the employee, it shall form a part of the wages in the case where it exceeds. This change does also apply to Social Security Code 2020 which is one of those 4 codes along with the New-Wage Code. Through this article let’s understand all those major changes and payment structure which is being implemented by the central government from 1st July 2022 as follow –
Modified Payroll Processing
The following are the major changes that came up in the payroll processing on implementation of the New Wage Code, 2022:
Increased contribution to the Provident Fund (PF)
Earlier before introducing the code, it is observed that about 12% of the basic salary shall be contributed towards the PF but the new code brings out the obligation to increase the contribution towards PF which would help to increase the pension corpus of an employee which he can avail after he retires.
Modified Gratuity Rule
The gratuity Rule is a rule which mandates an entity to award an amount to an employee as a part of appreciation and motivation in compliance with the Payment of the Gratuity Act 1972. The amount that has been awarded under the gratuity rule is considered the gross salary of the employee.
Earlier to the code the employees would receive the gratuity on successful completion of 5 years of work experience with the same entity. That means the entity used to pay gratuity every 5 years whereas the new code obligates the entity to award gratuity to the employee once a year,
Changes in Salary Structure
The basic salary of the employee shall be increased if it is constitution lessee than 50% of the CTC. And on such case, the allowances such as travel, food, overtime and conveyance shall be curbed to the left out per cent of the CTC.
Effect on ‘Take-Home Salary’
Due to the alteration in the definition of the term ‘wages’ in the code, the change has been arising in the payment structure and other aspects of the payroll processing which are directly showing the impact on the Take-home salary.
The PF and all other terminal benefits are inversely proportional to the Take-home salary that is whenever the PF increases the Take-home salary decreases as the PF is deducted from the CTC.
Four working days in a week
The new code permits to have four working days a week which increases the weekend holidays for the employee. Apparently, the working hours have been increased to 12 hours from 8 hours as followed earlier abiding by the previous laws.
Effect on the Business Community
The following considerations show impact on the business company:
The technical definition of the term ‘wages’ is clear/ Uniform
Earlier there were 12 different legislations under the labour laws which are unambiguous and would create sort of confusion while drawing conclusions. Whereas the new code provides a universal definition to the term which helps to bring out the clarity of the concept and subject matter.
The new code has a widened scope as it does not restrict itself to workers and employees with limitations based on their remuneration, it has a wider coverage through the Application of the new wage working model and protection of all the Employees,
Full and Final Settlement
The duration for full and final settlement of the left out the due amount that an employee entitles to receive has been reduced to just 2 working days. Within two working days after the termination, retirement or resignation of an employee the entity is under compliance to make a full and final settlement.
The pros and cons, elements, modifications and the impact that has been caused are well understood from the above article which has been analyzed based on the keen observation of the ‘New wage code, 2022’. The code constitutes of four main codes which are differentiated relying on the sectors and they are formed to bring out the universal nature of the law in order to make it clearer. This code has focused to benefit the employees after retirement whereas leaving them with shrink hands during the course of employment.
Since the Labor laws are on the concurrent list the state governments have the opportunity to make changes to the code provided by the central government that is why most of the states and union territories have already come up with their own draft rules while the others are yet to do so.
- Reema Sharma, New wage code from July 1: Changes in Leave, reduced in-hand salary, higher PF, 12 hours work week likely from next month <https://zeenews.india.com/personal-finance/modi-govt-likely-to-implement-new-wage-code-from-july-1-12-hours-work-week-changes-in-leaves-reduced-in-hand-salary-higher-pf-for-employees-know-all-that-might-be-changing-from-next-month-2476216.html> (21 June 2022).
- Saraswathi Kasturirangan, Radhika Viswanathan, Vijayalakshmi Kartik, ET CONTRIBUTORS When will you receive salary, full & final settlement under new wage codes? <https://economictimes.indiatimes.com/wealth/earn/when-will-you-receive-salary-full-final-settlement-under-new-wage-codes/articleshow/92406494.cms>. (29 June 2022).
- Sachin Disa, New Wage Code 2022-23: How it’s Impacting Your Payroll Processing <https://topsourceworldwide.com/new-wage-code-2021-how-is-it-impacting-your-payroll-processing/> (16 June 2022).
- Rudra Srivastava & Aman Gupta, WAGES (as per the new wage code) <https://topsourceworldwide.com/new-wage-code-2021-how-is-it-impacting-your-payroll-processing/> (7 September 2021).
- Ravi Singhania, <https://www.mondaq.com/india/employee-benefits-compensation/1109224/wages-as-per-the-new-wage-code> (8 September 2022).