Mar 24, 2021

With effect from the 1st April 2021, a new wage code is likely to come into effect. In my analysis, it will offer better social security to the employees but reduce their salaries, especially, the take-home salaries, marginally. Under the new rules for the salary structures in the organised sector, wages should be at least 50% of the total remuneration of the employee. Wages to include basic salary, dearness allowance, and retaining allowance. If the allowances and other benefits exceed 50% of the total income of the individual, the amount above 50% will be treated as part of the wages.

Although there has been no final announcement by the government yet, when the new rules come into effect, employers will have to modify the employee compensations as most companies do not give 50% of salary as basic pay!

The corollary effects of the new wage code will be:

  • Restructuring of pay packages of employees by companies
  • By restricting the perks and allowances to 25 -30% (over and above the 25% of HRA) of the remuneration, tax avoidance may get considerably reduced
  • Take-home salaries of employees may reduce marginally
  • Employees can expect higher post-retirement benefits like PF, gratuity contributions, etc.

To simply put it, the new wage code will have an impact on the employees’ cost-to-company (CTC) but also in the employers’ wage bills.

Once the formal announcement regarding the new wage codes is made by the government, those companies which outsource payroll with payroll companies, as well as the payroll providers themselves, will be extremely busy reorganizing payroll processing and payroll accounting. Payroll professionals will start rendering advice to their clients in payroll management and payroll compliance to fall in line with the new rules which are likely to come into effect sooner than later since the Labour Secretary has already briefed the media in February this year that the rule-making process was underway.

CR. Anandan

24th March 2021.

Tags :

payroll compliancepayroll processingpayroll accountingpayroll managementPayroll companyPayroll outsourcing

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