How New Wages Definition shall effect 2021-22 Salary Budget

THE PROMINENT EFFECT OF THE NEW DEFINITION OF ‘WAGES’ UPON THE ESTABLISHMENTS INCLUDING THE E-COMMERCE  COMPANIES FROM THE FINANCIAL YEAR (FY ) 2021-22. 

By : S K Gupta, Advocate, Supreme Court, 

011-22625485, skpfdelhi@gmail.com

www.makeinindialawfirm.com 

The subject of the Labour legislation matters are enumerated in List-III in the 7th Schedule of the Constitution of India ( Article 246 , 7th Schedule, List –III – Concurrent List, Item 22 to 24 ). Therefore, as per Article 246 of the Constitution of India , the Central Government, as well as States’ Government, are empowered to legislate laws but there is a rider that the enactment of the State Labour laws should align with the Central ones. So, the Ministry of Labour and Employment had already instructed all to the Chief Secretaries of all States and union territories to expedite the Rule making process for implementation of the following four Labour Codes on time i.e. April’2021. 

1. The Code on Wages, 2019 

2. The Code on Social Security,2020 

3. The Industrial Relations Code,2020 

4. The Occupational Safety, Health, and Working Conditions Code,2020 

The provisions of these codes, particularly the definition of “wages”, legislated uniformly in all four Codes, when implemented from April’2021, would take a new shape of “Wage-Structure” of all categories of employees ( Top to bottom). Therefore, statutory coverage under the provisions of the Social Security Code,2020 will be increased incalculably, resulted more financial liabilities upon the employers with respect of statutory compliance of the Provident Fund Contribution and the ESI Contribution as well as payment of bonus and gratuity. 

Therefore, to understand the correct interpretation of the definition of “wages” which is legislated in all 4 Codes uniformly as under: 

"wages" means all remuneration whether, by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes, —

1. basic pay; 

2. dearness allowance; and 

3. retaining allowance, if any, 

but does not include–– 

a. any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment; 

b. the value of any house accommodation, or of the supply of light, water, medical attendance or other amenity or any service excluded from the computation of wages by a general or special order of the appropriate Government; 

c. any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon; 

d. any conveyance allowance or the value of any traveling concession; e. any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; 

f. house rent allowance; 

g. remuneration payable under any award or settlement between the parties or order of a court or Tribunal; 

h. any overtime allowance; 

i. any commission payable to the employee; 

j. any gratuity payable on the termination of employment; 

k. any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment: 

Provided that, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half or such other percent. as may be notified by the Central Government, of all remuneration calculated under this clause, the amount which exceeds such one-half, or the percent. so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause: 

Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g), and (h) shall be taken for computation of wage. 

Explanation. ––Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed fifteen percent. of the total wages payable to him, shall be deemed to form part of the wages of such employee. 

IMPORTANT VIEWS OF WRITER : If payments made under clause (a) to (i), except Tribunal’s award amount, exceeds one-half or such other % , shall be deemed as remuneration and shall be accordingly added in ‘wages’ for statutory compliance under the provisions of the Social Security Code,2020 

The wages ( basic wages) should be more than 51% of the gross wages or cost to the company (CTC). Therefore, the employer has to fixed at least 51% as basic wages + DA & the rest components of the allowances can be fixed not more than 49% as enumerated in the exclusion clause of wages definition. Thus, the bifurcation of the minimum wages should not be done because of the new definition of wages. 

PROACTIVE APPROACH & ACTION PLAN OF THE HR PROFESSIONALS 

To comply with this new definition of wages as defined as above, the concerned employers of the establishment will have to re-structure the basic wages component of their employees from TOP to BOTTAM tentatively from April’2021 which will be resulted/effected take-home monthly salary of employees and retrial benefits too as well as the balance-sheet of the companies/establishments due more statutory liabilities and retrial benefits too. 

Example: 

How this new definition of ‘Wages’ (supra) will effect balance sheet of the establishments /companies /E-commerce companies from the Financial Year (FY) 2021-22 ? 

(i) Social Security benefits viz. Statutory payment of the PF Contribution and ESI Contribution will be effected with respect of the Coverage of the employees in numbers, and followed by more statutory liability of the PF & ESI. 

(ii) Gratuity liability of the old employees will extraordinarily be increased because of the new definition of wages (50% concept) and last drawn wages concept too ; 

(iii) Payment of bonus liability may also increase due to the new definition of wages and that too, there is no salary rider fixed by the Central Government in the new Code. 

(iv) Encashment of earned leave liabilities because of the new definition of wages as well as the new rider has been legislated under provision of OHS Code,2020 for payment of unused earned leave. 

(v) The Minimum Wages which is going to be notified in two-component i.e. Floor Wages ( Basic Wages) and DA and both components of the minimum wages will quality of the definition of “Wages” as defined under the four Labour Codes so now the outsourcing establishment i.e. contractors, manpower supply will not be allowed to bifurcate the minimum wages into different component to reduce statutory liabilities. 

(vi) Additional liabilities will come on Aggregator Company/ E-Commerce business i.e. Ola, Uber, Jio-mart, Amazon, Courier Companies etc. as these E-companies are liable to ensure the social security of the Gig Workers, Platform Workers and these Aggregator Companies ( specified under IIIrd Schedule of Social Security Code,2020 ) will have to contribute 1% of the total turn-over of the Aggregator Company or 5% of the salary or wages head of the Gig Workers / Platform Workers. 

Presently, due to the concept of “Cost to Company” (CTC), mostly private companies have already constituted a wage structure of their employees to keep the non-allowance part of the total compensation (CTC) less than 50 %, and portion of the allowances i.e. exclusion wages / non-statutory wages has kept higher-side to reduce the statutory liabilities including bonus, and gratuity liabilities too. However, this CTC concept will be changed as soon as the provisions of the Social Security Code,2020 as well as the Code on Wages,2019 

come into force from April’2021 which will be ultimately resulted more financial liability upon the companies/establishments / E-commerce company under the head of “Salary and Wages” in the balance-sheet of FY-2021-22 and so on. 

NB: For giving detail presentation of all 4 Labour Codes and its Rules framed thereunder, the company /establishment /organization/employer/association/chamber of commerce, etc. may contact me through email: skpfdelhi@gmail.com that “How to restructure the wages (CTC) of their employees because of 4 Labour Codes ?”. 

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