The Centre is likely to soon implement four new labour codes under the amended labour law, aimed at improving an employee’s well-being at work. Once implemented, the new labour codes are expected to revamp the rules dictating the age old relationship between employees and their employers. The central government has been working on designing the four new labour codes, under which there will be significant changes in terms of an employee’s salary, leave encashment, annual leaves, and final settlement if an employee decides to leave a company.
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Changes in Employee’s Salary Under New Labour Law
One of the most important aspects of the labour codes is that they lay down a new definition of wages, under which the take home salary and PF contributions will be impacted. “With the objective of uniformity, a new definition of wages has been introduced. This is a critical change since it would impact several statutory pay-outs such as bonus, gratuity, and contributions towards provident funds and employees’ state insurance,” said Vaibhav Bhardwaj, partner at IndusLaw.
As per the provision of the new codes, the basic salary of the employee will have to be 50 per cent of the gross salary. While this will mean that PF contributions of the employee and employer will increase, the take home salary will decrease for some employees, especially those working in private firms. The money received after retirement as well as the gratuity amount will also increase under the provisions of the new draft rules.
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Leave Encashment Under New Labour Laws
Apart from salary structure and wages, the Centre has also aimed to rationalise the leave policy of employees, which has a provision where the worker can encash their unused leaves annually. Currently, leave encashment can only be done after separation from the company.
“Employees have the flexibility to encash the unused annual leaves at the end of the calendar year,” said Bharadwaj. “While the current law only allowed employees to encash unused leaves upon separation, the codes provide for annual encashment. This is a welcome change from an employee perspective since the leaves they rightfully earn will be encashed and will not need to be forfeited when in excess of carry-forward entitlements,” he added.
Final Settlement of Wages Under New Labour Law
The new labour code mandates that the payment of salary to an employee who is getting separated from the company for various reasons including resignation, retrenchment or termination, be made within two working days of his or her exit. At the moment, many states do not mandate ‘resignation’ for determining this timeline of two working days. The full and final settlement by employers takes around one to to months at present to compute the gross amount to be given to the employee. However, the new labour law looks to drastically bring this time period down to two working days.
