New wage code from July 1: Changes in Leave, reduced in-hand salary, higher PF, 12 hours work week likely from next month

New Delhi: The Modi government is likely to implement four labour codes on wages, social security, industrial relations and occupation safety, health and working conditions from July 1, as per media reports. If these labour codes are implemented, the new wage code will impact employees' working hours, salary restructuring, PF contribution, gratuity aspect and encashing of Earned Leaves among the prominent ones. Since these are now early speculations, nothing concreted should be infered till the government officially notifies the rules.

Till now, 23 states have pre-published draft rules on these laws, while the Centre has completed the process of finalising the draft rules on these codes in February 2021. The central government had notified four labour codes, namely, the Code on Wages, 2019, on August 8, 2019, and the Industrial Relations Code, 2020, the Code on Social Security, 2020, and the Occupational Safety, Health and Working Conditions Code, 2020 on September 29, 2020.

Since labour is a concurrent subject, the Centre wants the states to implement these as well in one go, as has been reported earlier.

Reduced in-hand salary after implementation of Wage Code

The government's notification on Code on Wages 2019 may reduce the take-home pay while components like PF and Gratuity might rise. This is based on the grounds that the new wage code mentions provision entailing that the employee's basic salary will be at least 50 percent of his/her net monthly CTC. Hence, if this provision comes into effect, it will mean that employees will not be able to get more than 50 percent of his/her net monthly salary in form of allowance.

Higher PF after implementation of Wage Code

This also means that there will be a consequent rise in gratuity and PF contribution of the employee. Hence, while the take home pay of the employees may be reduced, the Gratuity and PF component may rise.

12 hours work-week

Experts also believe that the new draft will impact the working hours of employees with some media reports saying that employees may be allowed a four-day workweek but they will have to work for 12 hours on those four days. The labour ministry has apparently made it clear that 48-hour weekly work requirement is a must. 

Big changes in Earned Leave policy after new wage code implementation

The biggest change could be seen in cases of Earned Leave. Government departments now allows 30 holidays in 1 year, defense employees get 60 holidays in 1 year. Employees can cash up to 300 holidays on carry forward, however the Labor union is demanding to increase number of holidays to 450 in new code. At present there are 240 to 300 holidays in different departments. Employees can take these holidays in cash only after 20 years of service.