Labour law falls under the Concurrent List. Previously there were more than 40 Central Government laws and around a hundred State Government laws related to labour. The current four labour laws have absorbed the 29 labour laws implemented by the Central Government of India.
The new definition of ‘wages’ is part of the Code on Wages, which was proposed in 2019 and was passed by the Indian Parliament in August 2020. According to the new definition, the allowance provided to an employee cannot go beyond 50% of his or her total salary. This would increase the social security deductions such as Provident Fund.
The Code on Wages (2019) integrates 4 laws associated with wages and bonuses. These laws are – Payment of Wages Act (1936), Minimum Wages Act (1948), Payment of Bonus Act (1965), and Equal Remuneration Act (1976). The new labour codes will come into effect from April 2021.
While the New-Wage Code might benefit the working class, it might also have serious impacts on the salaried employees in the following manner:
- It would extend the base for calculating different retiral benefits such as PF, gratuity, etc. The take-home pay might also get impacted.
- An employee who joins an organization during a month will receive his or her salary by the 7th day of the next month. So, there will be no need of waiting till the next payment cycle. Also, while leaving an organization, an employee would receive his or her salary just within two working days from the date of his or her official resignation.
- If an employee is required to work on a rest day, he or she would receive a substituted rest day.
- No employees would be discriminated against based on gender, during the recruitment, and for salary calculations.
- The salary deductions in the form of recovery of housing rent, absence from duty/fines, loans, etc., cannot go beyond 50% of the wages.
With the introduction of the 4 New Labour Codes, the definition of ‘wages’ has been standardized. Presently, ‘wages’ are defined in multiple ways in the different statutes. The appropriate interpretation of the ‘wages’ has also been a debatable issue. Therefore, the Indian Government has attempted to simplify the definition of ‘wages’ and bring more clarity.
The new definition is inclusive and has a wide coverage area. The change and standardization of the definition will affect both employees and employers. This could increase the employers’ liability of payment of a contribution towards ESI, PF, and different other benefits. The coverage of employees in an organization may increase. The presently excluded employees might even come under the pursuit of the labour laws or might receive remarkable social security benefits.
According to the tax experts, though the New-Wage Code attempts to simplify the different wage-related rules and concepts, various aspects of the definition of ‘wages’ still require proper clarification before being implemented in reality. As the new definition is applicable for everyone, it shall impact all organizations irrespective of the sector that they are a part of.