Key Legal Changes with respect to Wages

1. Wage Definition & Salary Structuring (Code on Wages, 2019)

• Statutory Change (Sec. 2(y))
  Wages are now defined as: Basic Pay + Dearness Allowance + Retaining Allowance

50% Rule - Allowances cannot exceed 50% of CTC. Means align wages, which are equal to at least 50% of CTC. Exclusions (not counted within 50% cap): HRA, Overtime, Travelling allowance and Statutory bonus, etc.

Compliance Impact: If Wages < 50% of CTC → automatic reclassification

Impact of Wages Realignment- This increases:

• Provident Fund (PF)
• Gratuity
• Bonus liability

Earlier, many companies structured salaries so that allowances made up a large proportion of CTC. Now, all the calculations of PF, Gratuity and Bonus will be based on this new wage definition.

Current Risk: Most companies follow a low basic + high allowance model, which is now non-compliant and requires restructuring.

• Clearance of all dues Sec 17

All dues must be paid within 2 working days of: Retrenchment, Dismissal and Termination

• No discrimination in wages(Sec. 3&4) of code on wages Act- Every male and female should get equal wages for same amount/nature of work.
• Minimum Wages- Will be notified by the appropriate govt. under Sec.5 &6 of the Code on Wages. Must pay minimum wages.
• Overtime- The overtime rate, which shall not be less than twice the normal rate of wages(Sec. 14 of Code on Wages).

Note- All the benefits like PF, Gratuity, Bonus, etc. will be based on this new definition of Wages. Also, even fixed-term employees are eligible for gratuity on a pro rata basis under S.56 of Code on Social Security 2020