Explained: New wage code and how it will impact employees and employers

The new wage code comes into effect from April 1, 2021. Under this, the provided fund contribution will rise and as a result, one's take-home salary may decline. Apart from this, gratuity calculations are also set to change.

Preeti Chandrashekhar of Mercer India said, “On the gratuity side, there are two key aspects that are changing. One is that you are including the fixed-term employment also into the ambit of gratuity which means that anybody who is on fixed-term employment has to be paid gratuity on a pro-rata basis. The second change what is very important is the reference to the wage definition. So even for gratuity, the wage definition would change,” she said.

Santanu Ghoshal of Schaeffler India said that it will be complex for employers as well if the new wage code is implemented for April.

“Right now we are still deliberating how to tackle this issue because on one side this change would lead to increase on employers cost, on the other side if you look from the employees and if you look at our demographics, most of our guys are very young and therefore they are looking at more money in hand. So with this change, it is going to be a big challenge. If you couple that with the context of a low increase in this year and the change coming in the next year itself, it is going to be a little complex situation if it gets implemented from April 1st onwards,” he said.