According to the new wage definition under Wage Code 2019, in effect, at least 50 per cent of the gross remuneration of employees should form the basis to calculate benefits such as gratuity, retrenchment compensation and provident fund, etc in situations where the sum of basic salary and other fixed allowances (such as dearness allowance) is less than 50 per cent of the gross remuneration. Allowances cannot be more than 50 per cent of the total compensation. As a result, the basic pay (in government jobs, basic pay plus dearness allowance) will have to be 50 per cent or more of total pay from April, various media reports state.
In addition to restructuring the pay packages, it will have significant cost repercussions for firms. As the base to calculate PF and gratuity increases, employers will have to increase their workforce cost. This is in addition to a one-time cost increase for employers to audit their current base of employee pay structure and align with the new system and rising compliance cost burden.