Law on wages: 5 things that are set to change

At present, it takes up to two months for a former employee to get his dues from previous organisation. But the new Code mandates the payment of wages to an ex-employee within two working days of his/her removal, dismissal, retrenchment or resignation. At present, not all the states’ legislations include “resignation” for determining this timeline of two working days.

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It is worth mentioning that under the law, the timelines have been mentioned in relation to the payment of “wages” due and there is a specific definition of the term “wages”. Therefore, one could take a view that this requirement relates only to wages and does not include terminal benefits such as gratuity, leave encashment etc. This aspect is expected to become clear once the final rules relating to the new codes are notified.

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For the new joinees, the law indicates that for monthly wage earners, the wages are required to be settled within seven days of the subsequent month and that the wage period cannot be more than a month. Here companies could face challenges in terms of new joinees onboarded during the month, where the joining date is after the payroll cutoff timeline. But for a new joinee, this is likely to mean that he/she would get even a few days salary at the end of the joining month if he/she joined just a few days before the month-end

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Employers will have to ensure that deductions made from the salary relate to specifically permissible deductions (such as contribution to Provident Fund, tax deduction at source (TDS), etc.) and that the total deduction in any month should not exceed 50% of wages. For instance, where a new joinee joins an organization on 1 March 2022 (last month of the financial year) and opts for contributions such as NPS, Voluntary PF etc. in the month of March 2022, then the deductions for March 2022 (including contribution to PF, tax deduction, etc.) could exceed the 50% of wages for March 2022.
(Saraswathi Kasturirangan is Partner with Deloitte India, Radhika Viswanathan is Executive Director with Deloitte Haskins and Sells LLP and Vijayalakshmi Kartik is Manager with Deloitte Haskins and Sells LLP.)

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