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  • Writer's pictureAccounString Management Private Limited

New Labor Laws!! - New Salary Structure and benefits from 1st April, 2021

There are number of rules affecting common man are all set to change from April 1. Hon. Finance Minister Nirmala Sitharaman confirmed that the Code of Wages Bill passed in December 2019 would be implemented from 1st April 2021. The four labour codes were introduced in the New Wage Code Bill 2021. These changes will affect the people in many ways — right from your salary structure, EPF contribution, LTC vouchers, gratuity to ITR filing.

1. Changes in salary structure - Payslip 2.0

According to New Wage Code, the share of basic salary in your CTC should be 50 percent or more. If the basic salary is less than 50% in your salary details, then it is going to change soon. Allowances to employees, like leave travel, house rent, overtime and conveyance, will have to be capped to the remaining 50% of CTC.

Example: For simplicity's sake, let us consider an employee earning a salary of Rs.20000 monthly with a Basic pay of Rs.8000 while the remaining is covered by allowances before 1st April 2021. In this case, the employee’s PF contribution would be at 12 percent Basic pay i.e. 960. However, post 1st April; the basic pay would rise to Rs.10000. Allowances would have a reduced share of Rs.10000. But employee’s PF contribution, in this case, shall rise from Rs.960 to Rs.1200.

2. Contribution in Provident Fund will increase

Till March 2021 contribution in PF was 12% of your basic salary. After April 2021, the basic salary will become 50 per cent of the Cost to Company (CTC), the contribution to the PF will also increase. For example, take an employee of AccounString Management has a monthly CTC of Rs.2,00,000, as per the new norms Rs.1,00,000 will be the basic salary and Rs.12,000 will go to the PF account.

3. Take home salary will be reduced

Usually, most companies keep less than 50 per cent of the non-allowance part of the employee's salary so that they have to contribute less to EPF and gratuity and reduce their burden. But after the new pay code is implemented, companies will have to increase the basic salary. This will reduce the take-home salary of employees, but increase PF contributions and gratuity contributions. Also, the employee's tax liability will be reduced, as the company will add its PF contribution to the employee to its CTC (Cost-To-Company).

4. Relaxation with respect to Leave Travel Concession (LTC) rules

The Government has declared relaxation in the Leave Travel concession (LTC) Scheme due to the COVID-19 outbreak in 2020. Now, the Central Government Employees can claim income tax benefits on expenses made between October 12, 2020 to March 31, 2021 on purchase of items that attract GST rate of 12 per cent or more instead of travel expenses.

5. Change in Gratuity rule

As per those existing rules of Gratuity Act’s regarding Gratuity. Employees are entitled to receive gratuity after 5 years of continuous work in the same company, but as per the newly introduced rule in the new law, employees will be entitled to gratuity even if they have been employed for just one year.

6. Employee Work Time

According to the new law, 15-30 minutes of extra work done would qualify as overtime. Currently, less than 30 minutes of extra work is not considered for overtime. The new rules also state that employees would have to be given a break of half an hour after every five hours of work.

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