Current labor laws are currently governed by a number of laws. The new codes bring with them better and wider coverage of the workforce for social security benefits, ease of compliance, digitization of employee records and ease of access to information such as vacancies.
Some of the reforms revolve around the timeline for payment of wages. The Code on Wages, 2019 has prescribed specific time-frames for payment of wages to employees/workers based on the frequency of wage payment (such as daily, weekly, fortnightly or monthly). It is to be noted that here (Code on Wages, 2019) the word ‘wages’ specifically excludes statutory bonus.
At present, the provisions of the Payment of Wages Act, 1936, which regulates the time-limit for settlement of wages, apply only to workers with wages not exceeding Rs 24,000 per month, for this purpose, in terms of employment in wages. Includes all pay and allowances including bonus payable as per ,
However, the new code does not specify any salary range and covers all employees, making this timeline universal. Therefore, it is important for organizations to understand the implications in terms of meeting the relevant compliances and how this will affect the payroll process and timelines.
under deadline new labor laws For full and final agreement of wages
The Code (passed by the Parliament) states that wages must be paid to an employee exiting an organization within two working days of his expulsion, dismissal, retrenchment or resignation. Currently, not all state statutes include a “resignation” setting this deadline of two working days.
For example, Tamil Nadu and Puducherry specifically include a resignation category for this time limit in their respective state regulations. Other states like Maharashtra and Tripura for example include termination of employment by or on behalf of the employer as a qualification for a time limit of only two days.
For example, under the existing rules, if the last working day of an employee is June 1, 2022, the salary can be settled anytime from June 30 to July 31. However, once the Code comes into force, the employer will be required to settle the salary of the employee concerned. “Wages” until June 3, 2022.
It is noteworthy that the time-limits are mentioned in relation to the payment of “wages” payable under the Codes and the word “wages” has a specific definition. Therefore, one can consider that this requirement is only related to wages and does not include final benefits like gratuity, leave encashment etc. This aspect is expected to become clear once the final rules relating to the new code are notified.
Nevertheless, this is a significant change brought about by the Code. Let’s see how the full and final settlement currently works.
In practice, full and final settlement by employers takes anywhere between one to two months, depending on the policies of the individual organization. In general, this is the time taken by the employer to calculate the regular salary/salary payable to the employee till his last working day, terminal benefits payable (like gratuity, leave encashment), recalculation of income tax payable by the employee, recovery of pending Return of advance/loan given to employee and laptop, access/key card etc. issued by the employer.
With six to eight weeks to make full and final settlement after the last working day, employers to calculate pay/wages payable, make changes in tax calculations, ensure return of assets and complete all other necessary procedures Get enough time. To make full and final settlement to the employees.
The Samhita is now contemplating reducing this time limit to just two working days.
Organizations will need to significantly restructure their payroll policies and procedures to ensure compliance with these revised timelines set out in the Pay Code and related central rules.
Wage settlement for new employees under new labor laws
Some other areas that companies will need to focus on include the impact on wage settlement timelines for new employees. The Code indicates that for monthly wage earners, wages are required to be settled within seven days of the next month and that the wage period cannot exceed one month.
While this appears reasonable enough, companies may face challenges in terms of new joiners during the month where the joining date is after the payroll cutoff timeline. Here’s an example of how this would affect a new employee.
Every organization has a payroll cutoff timeline. For employees who join an organization after the payroll cutoff date, most employers process the first month’s payroll with the next one. For example, if the payroll cutoff date is April 25 (April 25, 2022), then for all employees who joined the organization during the period from April 25, 2022 to April 30, 2022, the salary will be processed and paid with the salary of May goes. 2022, making the first pay period longer than a month. This can trigger a non-compliance under Code on Salary 2019, For a new joiner, this may mean that he will also get a few days’ salary at the end of the joining month, if he joins only a few days before the end of the month.
Another provision that is important is related to the limit of deductions. The employer has to ensure that the deduction made from salary is specifically related to the permissible deduction (like contribution to provident fund, tax deducted at source (TDS), etc.) and that the total deduction in any given month is 50% of the wages. should not be more than
Where a new joinee joins an organization on 1st March 2022 (last month of the financial year) and opts for contribution like NPS, Voluntary PF etc. in the month of March 2022, the deduction (including contribution to PF) for March 2022 ) tax deductions, etc.) may exceed 50% of wages for March 2022.
With more states publishing draft rules, the implementation date is drawing closer than ever. Clarification is required on whether the deadline for settlement of wages will be extended beyond two working days. An extended timeline for commencement, followed by a phased reduction in the first few quarters of implementation of the Code, could be an alternative to a two working day timeline from the beginning. The anticipated clarification will go a long way in smooth implementation of the reforms that these Codes strive to bring.
(Saraswati Kasturirangan is partner with Deloitte India, Radhika Viswanathan is executive director with Deloitte Haskins and sells LLP and Vijayalakshmi Karthik is manager with Deloitte Haskins and sells LLP.)