Labour law is also known as employment law. It aims to promote worker empowerment as well as their protection. Both central and state governments can make laws regulating labour. The law coordinates individual and collective employment relations.
It controls the imbalance of power between the worker and the employer, prevents the employer from firing the worker without any cause, keeps a check on wage rate as per the work assigned, ensures safety in the workplace and standardises the number of working hours.
There are going to be some changes in labour law as Central Government is working on new labour law. It may come into effect this year from 1 July 2022. Here are the details:
- This new law has both good news and bad for employers and employees.
- The good side is that employees would get 3 days off a week.
- The bad side is working hours per day would increase from 8 to 12.
- There is going to be a major change in salary structure as the government has made it compulsory for basic salary to be 50% of gross salary. Let's understand how this will affect the in-hand salary of a person earning a gross salary of 2,00,000.
- If the gross salary is 2,00,000 then 50% of it becomes 1,00,000 as basic salary and now the PF will be calculated on it at let's say at 12% so that would become 12,000. Hence both employee and employer would each contribute 6,000/- towards PF. As the PF contribution has increased the in-hand salary of an employee will be reduced.
Here is a detailed calculation is shown in the below table, which compares how the salary structure will affect before and after the new labour law changes.
| Before Changes in Labor Law | After Changes in Labor Law |
|---|---|
| Basic Salary (40% of Gross) = 80,000 | Basic Salary (50% of Gross) = 1,00,000 |
| HRA (50% Of Basic) = 40,000 | HRA (50% Of Basic) = 50,000 |
| Other Allowances = 80,000 | Other Allowances = 50,000 |
| Total Gross Salary = 2,00,000 | Total Gross Salary = 2,00,000 |
| PF (12% of Basic) = -9,600 | PF (12% of Basic) = -12,000 |
| CTC before TDS = 1,90,400 | CTC before TDS = 1,88,000 |
- The thing here to take into consideration is that PF always is calculated on basic salary and now with basic salary being 50% of gross salary, contribution towards pf has increased which is obviously good for the employee but not the employer.
- Now, this increment towards PF would surely lead to a lesser in-hand salary but to see from a long-run perspective it would lead to more gratuity.
- Overtime duration increases from 50 hours to 125hours per quarter.
- Another thing that drew the government’s attention is work from home which during and after corona has become an important segment of corporates.
- There has been a major change in the number of leaves. Earlier 240 leaves days were provided now this has been reduced to 180 only. However, carry forward leaves and quantum leaves earned remains the same.
Conclusion:
I hope you enjoyed reading this blog on Changes in Labour law. What do you think about it? Are you happy with providing 3 days off per week or you’re stressed about increased contribution towards PF? If you need any assistance with your company's accounting services, please feel free to contact us anytime at info@bbnc.in. Thank you for reading, we are always happy to be able to provide useful information on topics like this!
