Labour Law Compliance in India

New labour law Compliance or labour laws will directly impact the employees’ pay. After implementation, these codes will bring a stream of salary structure changes in the economy. Under the new laws, all allowances of an employee, such as leave, travel, house rent, overtime, and conveyance, have to be cut down at 50% of the CTC. There are proposals about a four-day week work schedule and overtime limit as well. One thing that will definitely affect the salary of employees is the impact of changes in the cost to the company (CTC) and the take-home pay. As per various media reports, the Ministry of Labour and Employment is about to complete the process of finalising the implementation path for the four new labour codes for the coming fiscal year.

With the total allowances at 50% of CTC, this could result in a fall in take-home pay for employees as firms would have to face the additional costs related to gratuity and provident fund. If the aggregate of any of these exclusions is over 50% of the CTC, excluding special allowance, the company will add the extra amount back to the wage. According to reports, the Ministry of Labour has consulted and considered all stakeholders regarding the new labour laws. All the processes will be finished by the end of this month. After this, the implementation process of the rules will get started.

Following are the effects of new Labour Codes-


Cost to Company (CTC) refers to the yearly expenditure that a company spends on an employee. A report by Hindustan Times states, the new labour codes will push the firms to restructure the CTC as they include several allowances, including house rent, LTA, conveyance, and overtime at 50% of the total CTC.

Take-Home Salary

Take-home pay is the net amount of income received after deducting taxes, benefits, and voluntary contributions from a pay-check. It is the gap between the gross incomes less all deductions. The decrease in CTC would ultimately lead to a fall in take-home salary for employees as companies may have to beat additional costs due to an increase in provident fund and gratuity.

Definition of the Term ‘Wages’ Revised

The definition of the term ‘wages’ has been revised under the Code on Wages 2019. It has three components now – basic pay, dearness allowance, and retention payment. Some other components have not been included in ‘wages’ such as conveyance allowance, pension, PF contribution, over time, gratuity, HRA, and statutory bonus. If the aggregate of any of these exclusions is over 50% of the CTC, excluding special allowance, the company will add back the excess amount to the employees’ wage.

Increase in PF & Gratuity

The new labour codes may decrease employees’ take-home pay, components like PF and Gratuity might rise.

Terms for Overtime

The government may change the existing time constraint of overtime under the new Labour Law Compliance. If the employees work more than 15 minutes beyond the scheduled hours, businesses will have to pay their employees for this. It means, after the completion of working hours, if an employee works for even 15 more minutes, the company will pay him for overtime.

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