Exclusion portion of salary cannot go beyond 50% – Let’s Talk Compliance

Exclusion portion of salary cannot go beyond 50%

One significant change that is done under the proposed labour codes is on the definition of the term ‘wages’. Currently, various legislations follow various definitions. But the term is supposed to have a uniform definition under the codes, ideally making the determination of wages easy for employers. The quantum would be the same for various purposes, say, PF, ESI, Bonus, Gratuity, etc., subject to any ceiling prescribed for the purpose. There is currently no ratio between the ‘wage components’ and the ‘excluded portion’ in the monthly salary of an employee. Although there is no ratio in the codes too, a 50% cap is fixed for the excluded components, i.e., the sum of the ‘excluded components’, in the monthly salary of an employee, cannot exceed 50%, once codes are get implemented. Otherwise stated, at least 50% of the monthly salary would be considered as wages. In certain cases, this could work in favour of the employers and in certain other cases, it could favour the employees

K Varadan,

Chief Consultation Officer,
Aparajitha Corporate Services Private Limited

Disclaimer:  The article represents the opinions of the author and the author is solely responsible for the facts, cases, and legal or otherwise reproduced in the article.

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