Finally, after a long wait, the government has implemented new labor codes. These four new codes, which came into effect from November 21, have brought major and important changes in many rules related to salary, social security and gratuity of employees.
The purpose of these reforms is to make labor laws according to the needs of the present times. The best thing is that now contract workers and gig workers (like delivery partners, cab drivers) have also been brought under the ambit of social security. Let us know what effect these new rules will have on your job and pocket. Good news! Now gratuity will be available even on one year’s service. This is the biggest and beneficial change of the new labor code.
What was the old testament?Earlier, to become eligible for gratuity, any employee was required to work continuously for at least 5 years in the same company. What is the new rule?: Now fixed-term employees will get the benefit of gratuity only after completing 1 year of service. Who are fixed-term employees? These are those employees whom companies hire on contract for a fixed period of time (like 1 year, 2 years or 3 years). This rule will greatly benefit crores of employees working on contract. Your salary structure will change, basic salary will be 50%. The biggest impact of the new rules will be on your salary structure i.e. CTC break-up.
What has changed?: Under the ‘Code on Wages, 2019’, it is now mandatory for the basic salary of any employee to be at least 50% of his total CTC. What used to happen earlier?: Companies often kept the basic salary low and the share of allowances (like HRA, LTA) was high.
Due to this, the in-hand salary of the employee was more but his retirement fund (PF) was less. What will happen now?
With increase in basic salary, your PF contribution (12% of basic) will also increase. This means that your take-home salary may be slightly less, but more money will be deposited in your PF account, which will further secure your future. There is no change in the rules of PF, the old law will remain. This is a shocking but important update. Earlier it was believed that with the new codes the old law related to Provident Fund (PF) (EPF Act, 1952) would end. But the government has made it clear that the rules of PF will remain the same as before. This means that the terms and conditions related to PF will remain the same as they were till now.
However, due to the old rules of PF, companies may face some difficulties in making the salary structure with the new 50% basic salary rule. It is possible that the share of allowances like HRA and LTA in your salary may reduce slightly, because now they will have to be adjusted in the remaining 50% of CTC.
