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PF and Allowance in Salary to Increase under New Labour Code? What We Know So Far

By: Business Desk

News18.com

Last Updated: February 11, 2022, 10:32 IST

PF may increase for employees soon

PF may increase for employees soon

According to reports, the Centre is considering a high limit on allowances, around 70 to 80 per cent of an employee's wages, during the implementation of the labour code on wages during the first year.

The four labour codes, which the government has been trying to implement, have been in the limelight for quite some time now. The government has been deliberating on how they should come into effect, and what the rules under the new labour codes will be. According to reports, the Centre is considering a high limit on allowances, around 70 to 80 per cent of an employee’s wages, during the implementation of the labour code on wages during the first year.

According to a report on the Economic Times quoting people in the know, the allowances, as prescribed under the new labour rules, could be bought down to 50 per cent over a period of three years.

Another major change the government is mulling is restoring the cap on the number of employees in an organisation to 100 from the proposed 300 too seek its permission ahead of retrenchment or closing down operations, ET said in its report. This is going to fall under the international relations code.

Under the wages code, which has already been passed at the Parliament, payment by the mode of salaries, allowances or otherwise and include basic pay, dearness allowance and retaining allowance, if any. However, this excludes  allowances such as house rent allowance and overtime allowance.

The industry, to not raise its employee costs, has kept the allowances at 50 per cent of the wages. “The government is discussing changes that can be made to the code in view of the concerns expressed,” said an official in the know of the deliberations to ET.

This change would mean that the take home salary of the employee will decrease, but their provident fund contributions and gratuity will be hiked. The PF contributions by the employer will also increase in this case.

This is because these laws are going to change how the provident fund is calculated. This will reportedly prescribe that allowances cannot be more than 50 per cent of the total salary, meaning the basic pay has to be 50 per cent or more of total pay. Normally, employers keep the non-allowance part of the salary below 50 per cent, resulting in high in-hand pay for employees. However, once the changes are brought in, employers are required to increase the basic pay of employees. This will result in reduced take-home salaries because of rise in gratuity payments and employees’ contribution to the provident fund.

However, the jobs industry is afraid that these norms would affect them since the pandemic has shattered the economy in the country, which is still recovering.

“This has prompted the Centre to relook at the necessary changes that can be made to ensure minimum additional liability on employers, especially now when the pandemic has hit the businesses hard,” another person familiar with the discussions told ET.

The central government has 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.

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first published:February 11, 2022, 10:32 IST
last updated:February 11, 2022, 10:32 IST