- Implication of Term Wages Under Code on Social Security
- March 20, 2021
IMPLICATION OF TERM WAGES UNDER CODE ON SOCIAL SECURITY, 2020
UNIFIED DEFINITION OF WAGES
The compliance of various laws of social security is a task for any business organization and act as hindrance in the ease of doing business. So the government has enacted a law which subsumes all the existing labor laws prevailing in the country and also come up with the unified definition of the term wages which was earlier different in the various laws prevailing in the country.
INCLUSIVE ASPECT OF WAGES
The term wages has taken into consideration the basic pay which is explicitly fixed as per the terms of employment, dearness allowance which is paid by the employer in lieu of the increased cost of living due to inflation in the economy and retaining allowance which is paid by employers of seasonal factories in order to retain the employee.
- Basic Pay
- Dearness Allowance
- Retaining Allowance
EXCLUSIVE ASPECT OF WAGES
The major change has been made in regards to the allowances which are excluded from the term wages. The certain sum of allowance will be added to wages if the amount of any allowance except the gratuity benefit or retirement benefit exceeds the 50% of the total wages. The certain sum of allowance would be amount over and above the limit of 50% will be treated as wages.
- Bonus
- Medical Allowance
- EPF Contributions
- Conveyance Allowance
- House Rent Allowance
- Overtime Allowance
- Commission
- Others Allowances
EXPLICIT EXCLUSION FROM TERM WAGES
The gratuity benefit and retrenchment benefits are the two benefits which are explicitly excluded from the term wages that means these two would never become part of wages wholly or partially in any circumstance.
- Gratuity Benefit
- Retrenchment Or Retirement Benefit
IMPLICATION OF CHANGES IN TERM WAGES
THE EMPLOYEES’ PROVIDENT FUND
The Employee provident contribution depends on the wages payable to each employee, so the change in the definition of wages will also affect the provident fund contributions made by the employer and employee of the organization. As per the law the employer’s contribution will always be twelve percent of the wages and employee can contribute equal and more amount as may be required by the employee. The higher contribution of employee should not make employer liable for more contribution.
As per law of provident fund, the term wages in not defined explicitly but while calculating the contribution of the employer and employee, the wages includes the basic wages and the dearness and retaining allowances. So the changed definition of term will not affect the calculations of provident fund contributions as such because it is already following the rule.
THE EMPLOYEES’ STATE INSURANCE
Employee State Insurance laws made the employer and employee liable to contribute certain sum of money as the employee state insurance contribution.
The contribution in this law depends on the wages received by the employee under the contract of employment and the wages includes the payments made in the period of authorized leave, legal strike, layoff and leave due to medical conditions. The changed definition of term wages will affect the contribution of insurance and definitely decrease it because the term wages now will not include any payment made towards the medical allowances which it allowed under this law.
Thus all the confusion while calculating the contribution in each law comes to an end when the universal definition of wages implemented and simply any additional amount over 50% of wages considered as part of remuneration as per law.
GRATUITY
The gratuity benefit is the benefit received by the employee of the organization who has served the company for the significant number of years.
Under the gratuity law, the payment is made as per rules and the wages which is taken into consideration while calculating the gratuity, always includes the dearness allowance excluding any other allowances and benefits. So the exclusions of the term wages are similar with new law.
The current code aims to make the benefit of the gratuity lower than the 50% of the three components of the wage that is basic wage, dearness allowance and retaining allowance, so as to avoid the gratuity benefit to become the part of wage as per new rule.
BONUS
Under the payment of bonus law the term wages include the amount paid to the employee which can be expressed in terms of money and includes the payment in lieu of increase in cost of living. All the other allowances are excluded for the calculation of bonus for the employee.
The employee is eligible for the bonus under the law if his monthly income falls under the range of 7000- 21000. The clear definition of the term wages will going to be act as the advantage for the employee as earlier the employer used to sum up all the payments made to employee as wages to increase it to the threshold limit of 21000.
MINIMUM WAGES
Minimum wages law defines the term wages as all the remuneration paid to the employee in the terms of his employment and also includes the house rent allowance paid to the employee; it excludes all other allowance, gratuity and other amenities. The manner of calculation of minimum wage remain unchanged the current code has excluded the house rent allowance as part of term wages, this will act as difference of amount.
CONCLUSION
The uniform definition of term wages will benefit the employer in the better understanding of the law and its compliance in all respects. The employee also benefited as the uniform definition discourages all the manipulation from the employer side.
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