BENGALURU: With the parliament giving its nod to the Code on Wages Bill last year, the resulting in amendments in rules related to wages and bonuses is likely to push companies to restructure salary structures. According to experts, these changes may result in employees receiving lesser take home salaries from the next fiscal year (April 1, 2021).
Experts note that the new rules will result in a change in salary slips, in cash-in-hand, gratuities and provident fund (PF) payments, and even the balance sheets of private firms. The new rules state that the allowance part of the salary should be capped at 50 per cent. On the other hand, the basic pay should be 50 per cent or more. Conventionally, companies keep the allowance component of salaries higher which, results in more in-hand salaries to employees.
However, the new wage codes are aimed at increasing the contribution to avenues such as PF and gratuity, which might also impact the liabilities of employer firms. Under the current structure, basic salary averages arounf 30-40% of total salary which in turn determines the gratuities, and PF received. According to the Payment of Gratuity Act, 1972, gratuity is calculated as 4.81 per cent of the basic pay. Most firms with a workforce of 10 or more employees come under the Act.This is often payable to those employees who have completed a tenure of 5 years or more at the firm.
Employees Provident Fund (EPF), on the other hand constitutes a minimum 12 per cent of the basic salary, which can be withdrawn after at least a month from termination from the service or upon retirement. Basic salary is determined based on the designation of the employee and the industry in which he or she works in. Most of the other components, like allowances, are based on the basic salary.
This amount is fully taxable. Allowances, meanwhile, will be payable to employees during the course of their service and can be fully or partially taxable depending on their nature. This allowance component, such as for house rent, conveyance, and other expenses, is usually determined based on each company’s particular policies.
Source: The New Indian Express