According to the Code of Wages, 2019, the basic pay of an employee has to be 50 per cent of the total CTC. Find out which employees will benefit most from the implementation of the new wage code:
The government may soon notify the new wage code rules that will lead to a change in the salary structure for a large number of employees in the country.
According to the Code of Wages, 2019, the basic pay of an employee has to be 50 per cent of the total salary or cost-to-company (CTC). At the moment, most companies give employees a lower percentage of basic pay while keeping the number of allowances higher. However, this will change as soon as the new wage code comes into effect. Some reports indicate that the new wage code will come into effect from April, but the government has not officially declared it till now. Last month, it was informed that the government is working to notify it soon.
WHAT HAPPENS TO YOUR SALARY? When the new wage code kicks in, employers have to pay at least 50 per cent of an employee’s CTC as basic pay. Since the basic pay of employees will be half of the CTC, contribution towards other components like provident fund and gratuity will also increase. It may be noted that both provident fund and gratuity contributions are calculated on basic pay.
Most employees could see their take-home pay reduce, depending on the basic pay. At the same time, their retirement benefits will be higher as a monthly contribution towards provident fund and gratuity will increase.
It is worth noting that the CTC of employees depends on a few components -- Basic pay, house rent allowance or HRA, retirement benefits (PF, gratuity and more) and some tax-friendly allowances like LTC and entertainment allowance.
When the new wage code rules become applicable, companies will have to ensure that components that make up the CTC -- except basic pay -- do not exceed 50 per cent. And the other half has to be basic pay. This may lead companies to cut down on some exiting allowances, which are usually higher.
WHO BENEFITS? All employees will benefit from the move as their retirement benefits will be higher after the wage code is notified due to a higher contribution towards PF and gratuity. At the same time, the monthly take-home salaries of employees will dip.
The dip will be marginal for low- and medium-income earners. However, high-income earners could feel a bigger pinch once the new wage rules are notified. Simply put, a higher PF contribution will lead to lower in-hand pay and employees who earn more will see a higher contribution towards PF once their basic pay becomes 50 per cent under the new wage code. The same is the case with respect to gratuity contributions.
WHAT ABOUT TAXES? A higher basic salary of 50 per cent under the new wage code will also impact how much taxes an individual will have to pay.
According to experts, the salary restructuring could increase the tax liability of those earning a higher salary since their tax-capping options would be limited to just 50 per cent of the CTC.
On the other hand, those in the low and medium salary bracket may not face any additional tax burden and also enjoy higher retirement benefits. Therefore, it seems the new wage code is likely to benefit low- and middle-income earners more than high-income earners.
According to the Code of Wages, 2019, the basic pay of an employee has to be 50 per cent of the total salary or cost-to-company (CTC). At the moment, most companies give employees a lower percentage of basic pay while keeping the number of allowances higher. However, this will change as soon as the new wage code comes into effect. Some reports indicate that the new wage code will come into effect from April, but the government has not officially declared it till now. Last month, it was informed that the government is working to notify it soon.
WHAT HAPPENS TO YOUR SALARY? When the new wage code kicks in, employers have to pay at least 50 per cent of an employee’s CTC as basic pay. Since the basic pay of employees will be half of the CTC, contribution towards other components like provident fund and gratuity will also increase. It may be noted that both provident fund and gratuity contributions are calculated on basic pay.
Most employees could see their take-home pay reduce, depending on the basic pay. At the same time, their retirement benefits will be higher as a monthly contribution towards provident fund and gratuity will increase.
It is worth noting that the CTC of employees depends on a few components -- Basic pay, house rent allowance or HRA, retirement benefits (PF, gratuity and more) and some tax-friendly allowances like LTC and entertainment allowance.
When the new wage code rules become applicable, companies will have to ensure that components that make up the CTC -- except basic pay -- do not exceed 50 per cent. And the other half has to be basic pay. This may lead companies to cut down on some exiting allowances, which are usually higher.
WHO BENEFITS? All employees will benefit from the move as their retirement benefits will be higher after the wage code is notified due to a higher contribution towards PF and gratuity. At the same time, the monthly take-home salaries of employees will dip.
The dip will be marginal for low- and medium-income earners. However, high-income earners could feel a bigger pinch once the new wage rules are notified. Simply put, a higher PF contribution will lead to lower in-hand pay and employees who earn more will see a higher contribution towards PF once their basic pay becomes 50 per cent under the new wage code. The same is the case with respect to gratuity contributions.
WHAT ABOUT TAXES? A higher basic salary of 50 per cent under the new wage code will also impact how much taxes an individual will have to pay.
According to experts, the salary restructuring could increase the tax liability of those earning a higher salary since their tax-capping options would be limited to just 50 per cent of the CTC.
On the other hand, those in the low and medium salary bracket may not face any additional tax burden and also enjoy higher retirement benefits. Therefore, it seems the new wage code is likely to benefit low- and middle-income earners more than high-income earners.
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