New Wage Code Bill – FY 2022-23 – Increase in Provident Fund | Decrease in Take Home Salary
The upcoming fiscal year, 2022–2023, will see the start of the implementation of the New Wage Code. The new wage law may be put into effect at any point after April 2022, according to media sources. The new regulations state that the basic salary must equal at least 50% of the net cost to the company (CTC). The compensation structure of the private working class is anticipated to undergo a variety of adjustments as a result. Because it wished to do so alongside the other three codes on industrial relations, social security, and occupational health, safety, and working conditions, the government had delayed putting it into effect.
After the new Wage Code goes into effect on April 1st, employees’ minimal basic pay must equal 50% of their CTC. The remaining amount will be made up of other allowances, including leave travel, HRA, transportation, and so forth. The Provident Fund and Gratuity savings would significantly grow as a result of this single reform. This increase in EPF balance as a result of the new wage act would provide significant relief to EPF account holders because all PF withdrawals are tax-free under EPFO rules. According to the proposed revisions, wages used to determine gratuity and provident fund payments must be at least 50% of employees’ gross salaries.
Here is an illustration of a worker earning a basic pay of 40% and a CTC of Rs 12 lakh (or Rs 1 lakh per month). There are two scenarios: Situation A, where the HRA is a flexible component that an employee chooses not to use, and Situation B, when the HRA is a fixed salary component (Situation B).
Conclusion
Remember that these are merely examples. However, it fully depends on the person’s pay and benefits. When the Wage Code is put into effect, we’ll have to wait and watch.