How India's new labor codes will impact your salary
What's the story
The Indian government has introduced four new Labor Codes, replacing 29 outdated laws. The changes are aimed at ensuring fair wages, equal pay for men and women, better workplace safety, and improved social security benefits. The move is also seen as an effort to align India with global standards. For employees earning over ₹15,000/month, there won't be any major change in PF contribution. Employers can continue contributing their share on a maximum of ₹15,000 instead of the full salary.
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New labor codes mandate equal pay and health checks
The new labor codes ensure equal pay for men and women. It also makes it mandatory to conduct preventive health check-ups for workers over 40 years of age. This is a major step toward improving employee welfare and ensuring a healthier workforce.
Wage redefinition
New rules redefine wage calculation for benefits
The new labor codes also redefine how wages are calculated for benefits. Earlier, companies could keep basic pay low and give more money as allowances to reduce statutory payments like gratuity. But now, at least 50% of the total salary (CTC) must be treated as wages for calculating benefits. This is likely to increase gratuity payments and leave encashment allowances but may reduce maternity benefits in some cases.
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Fixed-term employees to receive gratuity sooner
Under the new labor codes, fixed-term employees will now get gratuity after just one year of service instead of the earlier five-year rule. This means that not only is your future gratuity payout likely to go up, but fixed-term employees will also get this benefit much sooner than before.
Cost implications
New labor codes may increase employer costs
While the new labor codes are beneficial for workers, they could also increase costs for employers. This has led to a trend of companies increasing the variable performance-linked part of salaries, which are usually linked to company performance and individual performance. Earlier limited to senior leaders, this trend is now becoming common even at mid-management and junior roles.