New Labour Code from July 1: Know the changes to salary, full and final settlement

The new labour code is set to be implemented on July 1 across the country. The changes may affect your in-hand salary, working hours, week-offs, provident fund, and lots more.

As part of the new labour code, a company has to pay the full and final settlement of wages and dues within two days of an employee’s last working day after resignation or removal from employment.

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As of yet, most organisations pay the full and final settlement of salary and dues after 45 to 60 days from an employee’s last working day. In some organisations, this settlement is stretched up to 90 days.

According to the new wage code under the labour law, "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." 

The Central government seeks to implement the new labour codes from July 1, but the final decision to implement them lies with the states. As of yet, some states have established the laws required by all four labour statues.

As per the Minister of State for Labour and Employment Rameshwar Teli’s written response to the Lok Sabha, just 23 states and union territories (UTs) have released the draft rules under the labour code.

Post the implementation of the wage code, all firms would have to align their payroll processes. They would have to rework their timelines and procedures so that any employee who has resigned or has been dismissed from service would get their full and final settlement of wage within two working days.

It is important to note that the new labour code permits individual states to set the settlement timeline according to what the state governments consider it reasonable.

As per the prescribed wage codes, "Notwithstanding anything contained in sub-section (1) or sub-section (2), the appropriate Government may provide any other time limit for payment of wages where it considers reasonable having regard to the circumstances under which the wages are to be paid."

Besides impacting the full and final salary of an employee, the new wage codes will bring in significant changes in the provident fund contributions, work hours and the in-hand salary of an employee.

Employees can expect their work hours to be increased up to 12 hours a day. In this case, the forms will have to offer three week offs instead of the common pattern of two-week offs. This will reduce the working days to four, but employees still have to work for a total of 48 hours per week.

Notably, the in-hand salary will also change as employees’ basic salary will now be at least 50 per cent of their gross monthly salary. This will imply a hike in the PF contributions made by employees and employers in the private sector.

The retirement corpus and gratuity amount will also increase after the implementation of the new labour codes.