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Introduction
Implementing the Code on Wages, 2019 (“Wages Codes”) represents the most significant overhaul of payroll structures in India. By consolidating four major laws, the Wages Code introduces a uniform definition of wages that will impact how companies structure their payroll. For organizations, particularly those in the service and information technology sectors, where allowance often makes up a bulk of the CTC, the Wages Code introduces a fundamental commercial shift and failing to align could lead to unanticipated costs, liabilities and significant penalties.
In this article, we aim to provide a step-by-step roadmap for organizations to implement the changes brought by the Wages Code:
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Step |
Focus Area |
Key Requirement |
Action Items |
|---|---|---|---|
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Step 1 |
Wage Definition Audit |
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|
Step 2 |
Statutory Liability Review |
Since the definition of wage has been revised, the contributions to provident fund, employee state insurance, gratuity and other statutory contributions and payments may increase or decrease depending on the current practice adopted by the organisation |
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|
Step 3 |
Full and Final Settlement |
Wages and dues must be paid within 2 working days of an employee's resignation, dismissal, or retrenchment. |
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Step 4 |
Overtime Standardization |
Overtime must be paid at twice the normal rate of wages. |
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Step 5 |
Managing Deductions and Recoveries |
The rules on deductions and recoveries from an employee's wages now apply uniformly to all employees, irrespective of the wages earned. |
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Step 6 |
Gender Equity |
Wages Code prohibits discrimination on the grounds of gender in matters relating to conditions of service, including wages for same or similar work. |
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Why does this matter?
The Wages Code effectively ends the allowance era where organizations heavily relied on allowances to prepare salary structure. The change brought about by the Wages Code is not just a payroll adjustment but also a balance sheet event. Penalties for non-compliances have also increased indicating stricter monitoring framework where compliance is no longer a mere checkbox.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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