The Code on Wages Bill 2019 has become a topic of much chatter. The new rule states that the allowances cannot be more than 50 per cent of the total salary. That means, the basic pay has to be 50 per cent or more of the total pay. The rule will come into effect from April 2021. The Government’s intent behind these revised norms is to increase social security benefits of the employees. They will now have increased PF contributions and gratuity. However, that can impact their take-home salary. It obviously makes the retirement benefits a lot more lucrative with more money when the employees actually need it. At the same time, it will also make the organisations mull over the path forward in terms of salary structures. Although it’s still not clear what happens to the wage threshold laws for bonus, provident fund (PF) and Employees’ State Insurance (ESI), HR leaders do feel that the change will impact the pay structure, irrespective of whether it is big or small.
“Organisations will take a call whether to increase the CTC by X per cent or not, and people will get impacted. Whatever may be the approach or model, it will definitely increase the overall cost per resources that companies are looking.”
Anil Jalali, executive coach and business advisor, believes it is a move to be welcomed. “It is a good tax-efficient saving. In today’s context, PF gives the most effective return on investments as far as non-stock market or non-equity saving options are concerned. It can be a blessing in disguise for people who wish to see it as a good tax-efficient way of saving for the long term,” Jalali believes.
The lesser take-home salary can also be a dampener for many aspirants, because they look for more cash in hand, especially the minimum-wage employees. However, experts believe that there will not be a significant dip. “The change may not be significant enough for the take home to see a big drop. In any case, the money goes to them only, but through other means. From the talent-acquisition perspective, when everybody is on the same boat, the rules of the game apply to all. I don’t see any reason why it will create a difficulty in talent acquisition,” Jalali explains.
“The main intent is to do away with the inspector raaj. They will help the organisations comply with the laws rather than harassing them by inspecting.”
Anurag Verma, VP, human resources, Uniphore, adds here that the employers have no obligation to increase CTC, just because they are paying more for retiring benefits. “It is an education to be given that this is a change, which is not done by the company but the Government. However, the reality is that people will get impacted. Organisations will take a call whether to increase the CTC by X per cent or not.”
It will definitely be structured differently so that the nett burden is reduced and the organisations are compliant as well. “Whatever may be the approach or model, it will definitely increase the overall cost per resources that companies are looking at in the current scenario vis-à-vis the changed one,” Verma feels.
The ambiguity in certain areas of the Bill are still keeping the organisations from thinking of a way forward. Many believe it will help abolish the inspection and will make business easier. Dilip Pattnayak, president and CHRO, steel & corporate,JSW, reveals that the inspectors will now turn facilitators. “Government has done it for the ease of doing business. There are areas where employees get benefitted, while tax returns and others make it easier for the organisation. The main intent is to do away with the inspector raaj. They have done away with inspection and they will be converted into facilitators. They will help the organisations comply with the laws rather than harassing them by inspecting.”
“In today’s context, PF gives the most effective return on investments as far as non-stock market or non-equity saving options are concerned. It can be a blessing in disguise for people who wish to see it as a good tax-efficient way of saving for the long term.”
Also, self-declaration will be the norm. The Government has made a provision of compounding of offences. “If you commit a violation for the first time, the penalty is lower. If it is repeated a second time, however, the penalty gets compounded. This wasn’t the case earlier. They are trying to bring this concept of ‘Be right the first time’,” explains Pattnayak. They have brought in gig and platform workers in the purview of social security. One cannot structure pay in a way that their contribution is reduced. That is why they have said minimum wage should be 50 per cent. “Clarity is still required in case of people with minimum wages. What we have understood is that it will be based on skills and geography,” Pattnayak reveals.
As far as the Wage Code is concerned, a lot of finer details are still vague. Will the implementation of the Code give the desired results or not? From whatever little is out there in the open, we can believe that it will be a wait-and-watch game.