How will this change your salary structure? Details here

New salary code: how will this change your salary structure? Details here

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The new wage code is set to be implemented soon in the country after all states notify the rules under it. As the Code is implemented, it will completely change your salary structure. Not only the payslip, but the Code will also see many changes on the gratuity amount and on the Withholding Tax (TDS) fronts. In payslips, some of the broader headings are base salary, allowances, HRA, transportation, PF deduction, employee group insurance, and TDS. With this new Code, some of these components will completely change. Find out how this code will change your payslip.

Base salary cannot be less than 50% of gross salary

In accordance with the new rules, the base salary will represent at least 50% of the overall salary. Once the basic changes are made, the entire structure will see a plethora of changes in employee pay slips.

The meaning of “salary” was changed in the Salary Code Bill 2019. Now, due to the changes in base salary percentage, changes in provident fund contribution, gratuities and other elements are unavoidable. The most immediate effect is the drop in take-home pay. But employers’ contribution to the provident fund is set to increase.

Allocations and variables will also decrease

As the new rules require base pay to be equal to 50% of gross pay, companies will look to adjust other elements. Currently, the basic salary varies between 10 and 40% of the gross salary. The rest is covered by allowances such as HRA, transportation, special allowances, phone bill, etc. Now, since the basic salary increases, the allowances will decrease.

The provident fund will increase

The PF is calculated as a percentage of base salary. Now, with the increase in the base salary, the PF will also increase. This will ensure the future of the employees, but from the total, more SP will be deducted. This could have a negative impact on the net salary.

The tax burden will increase

Allowances, with the exception of base salary, bonuses and part of the HRA, are not taxable under the current rules. With the rise in the base, taxes are also set to rise. The non-taxable part will decrease considerably with the new changes. It will go from 20 to 25%, compared to 50% or more previously.

Under the new rules, the tax on the HRA is also expected to increase significantly. Due to the base salary increase, HRA will also increase. This will increase the taxable portion of HRA

William M. Mayer