New wage code and its impact

New Wage Code And its Impact


During 2019 and 2020, as many as 29 labor laws were amalgamated, simplified, and rationalized into 4 labor codes as below:

  1. The code on Wages 2019
  2. The Industrial Relations Code 2020
  3. The code on Social Security 2020
  4. The Occupancy Safety, Health and Working Conditions Code 2020

These four codes are likely to be implemented soon as around 23 states have already come out with draft rules (as Labour is a Concurrent subject)

How New Labour Code Impact Employees?

The four codes, if implemented, will drastically alter the way industrial houses treat their employees and also impact the working hours, take-home salary, and other rights of employees.

  1. Once the wages code comes into force, there will be significant changes in terms of salary restriction, basic pay, provident fund, and gratuity of employees are calculated.
  2. A key change is that it would impact take-home pay, but increase retirement savings—something that a section of employers are opposed to as it may increase their employee costs.
  3. As per the new code, the basic salary of the employees will have to be 50 percent of the gross salary. The take-home salary of the employees will come down but the PF contributions of both the employees and the employer will increase.
  4. As per the new law, companies will be permitted to make their employees work for 4 days a week instead of the current 5, however, the working hours will increase daily work hours from 9 hours to 12 hours daily as they will have to meet the 48-hour weekly work requirement. If 4 days a week is implemented, employees will enjoy a week off of 3 days. If an employee works beyond the 48-hour week requirement, overtime payment should be given to them (15 minutes or more will be attaching overtime payment to employees)
  5. The new wage code states that a company must pay the full and final settlement of to employees within two days of their last working day. Currently, the complete settlement of salary and dues is given after 45 days to 60 days from an employee’s last working day. As per the new code, where an employee has been – (i) removed or dismissed from service; or (ii) retrenched or has resigned from service, or became unemployed due to closure of the establishment, the wages payable to him shall be paid within two working days of his removal, dismissal, retrenchment or, as the case may be, his resignation.
  6. New Leave Policy introduces in Wage Code. The maternity leaves for female employees will increase to 26 weeks from the current 12-week period. Also, companies cannot place them on the night shift without their consent. Proper facilities and security should have to be ensured. If this code is implemented, the labor force will be entitled to leave after every 180 days against 240 days earlier.

Steps May Be Considered By Corporates

  1. Assess the Wage calculations and financial impact immediately after implementation
  2. Align Compensation Structure to optimize aspirations of employees by considering tax implications, take-home components, etc.
  3. Aligning HR policies
  4. Categorization of employees including Fixed term employees; Gigworkers; any other nontraditional employer-employee engagement model/s
  5. Map current Internal Processes with desired changes required to be compliant


Hence the new labor code has many advantages for employees. Some people consider that certain changes should be made in the laws, while some are eagerly waiting for them to be implemented. The new rules also covering about Work from Home which was implemented during the COVID-19 pandemic.

The new rules have been drafted to improve the well-being of employees.

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