Labor Codes : How Will They Affect Your In Hand Salary

The government will implement the four labor codes in the next few months. After the implementation of this law, the in hand salary of the employees will decrease. Meanwhile, the provident fund (PF) liability of the companies will increase. There will also be a significant change in the method of calculation of basic salary and provident fund of employees.

Instead of 44 laws, Only 4 laws Will Be Effective

The Labor Ministry wanted to implement four labor codes from April 1, 2021. They are industrial relations, wage and social security, occupational and health protection and working conditions. These four labor codes will replace the 44 existing central labor laws.

The ministry had also finalized the rules falling under these four codes. However, these could not be implemented practically as many states were not in a position to notify the rules under these codes.

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States Showed Speed In Implementing Laws

Labor is a concurrent subject under the Constitution of India. This means that both the Center and the states need  to notify the rules under these four codes. After that only these laws will come into existence in any state.

However, several major states have not finalized the rules under these four codes. Some states are in the process of finalizing rules for the implementation of these laws. Some have already released the draft. The list includes Uttar Pradesh, Bihar, Madhya Pradesh, Haryana, Odisha, Punjab, Gujarat, Karnataka and Uttarakhand.

Central Government Cannot Wait

Meanwhile, the central government also cannot always wait for the states to finalize these rules. So the government plans to implement these laws in a month or two. This is because companies and establishments will have to get some time to adjust with the new laws.

Under the new pay code, the allowances will be capped at 50 per cent. This means that 50 per cent of the total salary of the employees will be the basic pay. Provident fund is calculated on the basis of percentage of basic salary. This includes basic pay and dearness allowance.

At present, employers divide the salary into several types of allowances. This keeps the basic salary low, thereby reducing the contribution to provident fund and income tax. The government will fix the contribution of provident fund in the new wage code at the rate of 50 percent of the total salary.