A company has to make full and final payment of wages and dues within two days of the last working day of an employee following his resignation, dismissal or removal from employment and services, as per the new wage code.
Currently, the general practice adopted by businesses is to make full payment of salaries and dues after 45 days to 60 days from the employee’s last working day, and in some cases, it goes up to 90 days.
India’s new reform, which has already been passed by Parliament, has four labor codes: wages, social security, labor relations, occupational safety, health and working conditions.
The new wage code under labor law states, “Where an employee has been – (i) removed from service or dismissed; or (ii) retrenched or resigned from service, or has become unemployed by reason of the closure, the wages due shall be paid within two working days of his removal, dismissal, retrenchment or, as the case may be, his resignation.”
Four new labor codes were created by reviewing and combining the previous 29 central labor laws.
While the government wants to implement these new laws by July 1, many states are yet to ratify these rules, which are required by the Constitution to take effect, as labor is on the Concurrent List.
For now, some states have not yet established the laws required for all four labor laws.
According to a written response in Lok Sabha by Minister of State for Labor and Employment Rameshwar Teli, only 23 states and Union Territories (UTs) have issued draft guidelines under the Code on Wages.
If the Wage Code is implemented, businesses will need to reorganize their payroll processes and work around timeliness and procedures to achieve full settlement of wages within two working days.
But the code allows individual states to determine full and final settlement times based on what the state governments deem appropriate.
“Notwithstanding anything contained in sub-section (1) or sub-section (2), the appropriate Government may, having regard to the circumstances, provide for any other time limit for the payment of wages, where it thinks fit under which the wages are to be paid.”
The newly fixed wage code stipulates a range of other amendments, which will result in increased working hours, PF (provident fund) contribution, and reduction in the pay in hand for employees.
According to the new laws, companies can increase the working hours from 8-9 hours a day to 12 hours.
However, they will have to give three weekly holidays to the employees.
So, working days in a week will be reduced to four days but total working hours in a week will not be affected. The new wage code mandates a total of 48 hours of work per week.
Employees’ take-home pay will also change significantly as the basic pay under the new pay code will be at least 50 per cent of the gross monthly salary.
This will also lead to increase in PF contribution made by employees and employers and take-home pay by private sector employees will be affected more.
Under the new labor laws, there will be an increase in the retirement fund and gratuity amount.