Implementation of these laws becomes important as once implemented, there will be a reduction in take-home pay of employees and firms will have to bear higher provident fund liability.
“NS labor Ministry Prepared with rules under four labor codes. But states have been slow to draft and finalize them under the new code. Also, the government is not inclined to implement the four codes for political reasons, which are mainly elections in Uttar Pradesh (to be held in February 2022),” the source said.
Four codes have been passed by the Parliament. But for the implementation of these codes, the rules under them have to be notified by the Central and State Governments for implementation in the respective jurisdictions.
“It is likely that the implementation of the four labor codes may be extended beyond this financial year,” the source said.
After the implementation of the Wage Code, there will be significant changes in the way employees’ basic pay and provident fund are calculated.
NS labor Ministry Four codes on industrial relations, wages, social security and occupational health protection and working conditions were envisaged to be implemented from April 1, 2021. These four labor codes will rationalize 44 central labor laws.
The ministry had also finalized rules under the four codes. But these could not be implemented as many states were not in a position to notify rules under these codes in their jurisdiction.
Labor is a concurrent subject under the Constitution of India and therefore both the Center and the States have to notify rules under these four codes to make laws of the land in their respective jurisdictions.
According to the source, some states have worked on draft rules on the four labor codes. These states are Uttar Pradesh, A state in Eastern Indiahandjob Madhya Pradesh, Haryana, Odisha, Punjab, Gujarat, Karnataka and Uttarakhand.
Under the new wage code, the maximum limit of allowances is 50 per cent. This means that half of the gross salary of an employee will be the basic salary. Provident fund contribution is calculated as a percentage of basic pay, which includes basic pay and dearness allowance.
Employers are dividing the salary into several allowances to keep the basic pay low to reduce the provident fund and income tax expenditure. The new Wage Code provides for provident fund contribution in the form of a prescribed proportion of 50 percent of the gross salary.
After the implementation of the new code, the take-home pay of the employees will come down while in many cases the provident fund liability of the employers will increase.
Once implemented, employers will have to restructure their employees’ wages according to the new code on wages.
In addition, the new Industrial Relations Code will improve the ease of doing business by allowing firms with up to 300 employees to go ahead with layoffs, layoffs and closures without government permission.
At present all firms with up to 100 employees are exempted from government permission for lay-offs, layoffs and closures.