Labour Codes on the Cards: Firms to See a Rise in PF Liability

Story Highlights
  • New labour codes to be implemented soon
  • The new code caps allowances at 50 per cent
  • Employers split wages into numerous allowances to keep basic wages low to reduce provident fund and income tax outgo

New Delhi: The Centre may soon implement four new labour codes, which would result in reduction of take-home pay for employees and increase provident fund liability of the companies. 

As per the new labour suit, a significant change in basic pay and provident fund of the employees would be noticed. 

The Labour ministry proposed implementing the four codes on industrial relations, wages, social security and occupational health safety and working conditions from 1 April 2021. These four labour codes will rationalise 44 central labour laws. However, these couldn’t be finalized as many states were in a tight spot due to the resurgence.  Labour is a contemporaneous subject under the Constitution of India and therefore both the Centre and states have to notify rules under these four codes to make them the laws.

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A source reported,” Many major states have not finalised the rules under four codes. Some states are in the process of finalising rules for the implementation of these laws. The central government cannot wait forever for states to firm up rules under these codes. Therefore it is planning to implement these codes in a couple of months as some time would have to be given to establishments or firms to align with new laws.”

Under the new wages code, allowances are capped at 50 per cent. This means half of the gross pay of an employee would be basic wages. Provident fund contribution is calculated as a percentage of the basic wage, which includes basic pay and dearness allowance. Once implemented, employers would have to restructure salaries of their employees as per the new code on wages.

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