No change in salary structure from 1st April - Centre postponed the decision

 


The decision of the change in your salary structure from April 1 has been postponed by the Central Government. The reason for this is that the preparation of the labor codes of some states is said to be incomplete.

A senior labor ministry official noted in a report that the enforcement of the labor code has been postponed for some time as states have not yet finalized the rules.

The government wants at least some industrialized states to notify the rules in the four labor codes, along with the Center, to avoid any legal void.

The report further mentions that the Ministry of Labor is ready with rules on four codes and will notify them after some states are ready with rules in their domain. So far, only Jammu and Kashmir have notified the rules for the code while states like Uttar Pradesh, Bihar, Uttarakhand, and Madhya Pradesh have made updrafts rules for the two codes while Karnataka has kept it for one code.

In 2019, Parliament approved the Code on Wages and in September 2020 it approved the Social Security Code, the Code on Industrial Relations, and the Code on Occupational Safety, Health, and Working Conditions. The 29 labor codes have been amalgamated into four codes to reduce compliance burden and improve ease of doing business. The new code aims to make it easier to hire and fire workers, and to give employers more flexibility for working hours. After which companies were asked to make several important changes including the salary structure of their employees.

Due to the change in laws, your take-home i.e. these hand salaries would have reduced, but the amount of provident fund i.e. PF would have increased. It simply means that the government is trying to improve your savings.

The new law will affect the salary of the employee but due to saving, there will be more savings for the future. The interest in PF is found to be between 8-8.5% every year. Overall, this is a positive step for employed people.

 

Now let's understand the mathematics of salary :

Generally, two terms are well-known among any working person, one is CTC i.e. Cost to Company and second is Take Home Salary, also known as in-hand salary.

1. CTC: CTC means Cost to Company, means the total expenses of the company in terms of your work, it is your total salary. This salary not only includes your basic salary but also house allowance, medical allowance, travel allowance, food allowance, and incentives. Combining all of these determines your total salary, which is called CTC.

2. Take-home salary: When you get salary, it is less than your CTC. Reason- The company deducts some money from your CTC or total salary for provident fund i.e. PF, deducts the premium of some medical insurance and cuts some items. The money that comes into your hands after all these is your in-hand salary.


How will your salary be reduced with the new change?

A person whose basic salary is 50% of CTC will not make much difference, but one whose basic salary is not 50% of CTC will make much difference. This will be because, under these rules, the basic salary of anyone cannot be less than 50% of the CTC. Because PF money is deducted from your basic salary, which is 12% of basic salary.

This simply means that the higher the basic salary, the more PF will be deducted. Earlier people used to increase the allowance by reducing basic salary from Total CTC, which also provided tax exemption and reduced PF. This used to increase in-hand salary. 

According to hr professionals, this will definitely cause some problems in the hiring of employees, as most of the employees talk about in-hand salary. In such a situation, it can be a bit difficult to convince the employees about this change. As the company sets its budget before hiring, HR's responsibilities will increase in this entire process.

However, once the employee understood mathematics, there would be no problem. Because ultimately it is the interest of the employee in the law. Apart from this, other sector experts said that the change in in-hand salary, PF, gratuity, and payslip will also affect the company's balance sheet.

 

Let’s Understand the salary comparison with an example:

Assume CTC of a person is 1 Lac Rs

Components

Old Rule

New Rule

Basic

30,000 Rs

50,000 Rs.

PF

3600 Rs

6000 Rs.

Other Deduction (Min)

5000 Rs

5000 Rs

In Hand Salary

91400 Rs

89000 Rs

 

Alpha Eye Thoughts:

This delay comes as a major relief for Indian companies and employees. It will give more time to companies to remodel employees' pay structure and other policies related to Human Resources (HR). Some provisions of the code would have increased the cost-to-company (CTC) of employees.


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