New Wage Code may hit your take-home salary

New Wage Code was introduced in the year 2019, and the same is expected to be notified with effect from 1st April 2021. This code will bring a major change in the definition of Wages. This Change is going to bring a major hit on take-home salary. To Analyse this, first, you should know what is the new definition of Wages.

Wages means all remuneration whether by way of salaries, allowances, or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes,—

(i) basic pay;

(ii) dearness allowance; an

(iii) retaining allowance, if an

but does not include-

(a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;

(b) the value of any house accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government;

(c) any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;

(d) any conveyance allowance or the value of any traveling concession;

(e) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment;

(f) house rent allowance;

(g) remuneration payable under any award or settlement between the parties or order of a court or Tribunal;

(h) any overtime allowance;

(i) any commission payable to the employee;

(j) any gratuity payable on the termination of employment;

(k) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment:

Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half or such other percent. as may be notified by the Central Government, of all remuneration calculated under this clause, the amount which exceeds such one-half, or the percent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause:

Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g), and (h) shall be taken for computation of wage.

Explanation.––Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen per cent. of the total wages payable to him, shall be deemed to form part of the wages of such employee;

The following conclusions can be drawn:

• The scope of wages has become wider. The definition of Wages is inclusive
• Wages mean all remuneration whether by way of salaries, allowances, etc. with specific and limited exclusions like a bonus, Provident Fund, etc.
• These exclusions come with a cap, that they cannot exceed, 50% of the total wages.

How this will impact take-home salary?

• Please note that various retirement-related benefits like gratuity and provident Fund etc are calculated on Wages.
• Generally, they are part of the CTC of the employee and they are deducted from the take-home salary of the employee.
• Now when the Scope of Wages will increase, thus it means that the Share of Gratuity and Provident Fund will increase. This will mean less, take-home salary on one hand and more retirement benefits on the other.