All You Need to Know About the Employment Law Changes in 2021

Laws on employment and labour have and will continue to change depending on the domestic and worldwide economic situations. All we can do is hope that it rings in favourable circumstances for the employed.

The world, as we knew it, changed tremendously in the year 2020. The pandemic has been one of the driving factors behind many changes in professional sectors. A lot of policies and practices had to undergo a revamp to adjust to the new normal and make it a comfortable process for us.

Remote working is not the only change that has happened with the whole world almost simultaneously working from home in 2020-21. There are a lot more things that underwent restructuring and reframing to adjust to the new situation and still stand tall.

It is pretty obvious that financial matters all around the world were tremendously affected due to the pandemic. So many private-sector employees were laid off globally. The work they were doing fell upon the existing workforce but at reduced salaries. Salaries of government sector employees were held back for a few continuous months. But the world seemed to continue.

As if this was not enough, there has been a change in employment laws in 2021 that is going to declare the salary structure of employees from now onwards. Let us have a look at what changes are happening concerning that area.

Employment law changes 2020

When our headlines were completely occupied with Covid-19 related news throughout the year, a detail that we missed out on was that roughly about 122 million employed people were let go from March to April. Due to reduced cash flow in the economy, no employment creation was happening on the government’s part. The balance of unemployment is still coming to equilibrium as people have just recently started getting jobs again.

Employment law 2021

Even though we are assuming that the employment changes happened post-pandemic, it is a less known fact that employment law changes fast as part of a code on wages in 2019. Those were supposed to be effective from the financial year which should have started in April 2020 but that eventually did not happen due to the pandemic and unforeseen circumstances in the world of work. So now this law is expected to come into effect from April 2021.

What is Employment Law in 2021 all about?

Employment law is going to be effective from April 2021 and is not exactly going to affect the final figure of the salaries. No increase or reduction in the wages was passed on earlier. A lot of people have been living under the fear that in the post-pandemic era, salary structures are going to change and resultantly reduce their salaries. But that’s not the case. Just the fact that this law was passed in 2019 and is just coming into effect now, says a lot about it and reduces fear amongst people. Hence people coming from various sectors of the workforce, be it blue-collar jobs or white-collar jobs, need to know this.

Changes in employment law

The following changes have happened in employment law that will take effect from 2021.

  1. The allowances along with salary should not be more than 50% of the salary

An employee’s salary consists of various allowances housing allowance, dearness allowance, medical emergency allowance and so more. The number of allowances and their actual amount differs from company to company. But these are one of the additional perks and benefits that people look at before joining any company. According to the code on wages bill in 2019, allowances have to be below 50% of the salary of employees. This now translates into saying that the basic pay of the salaries would have to be increased to adjust its proportion to allowance components.

  1. There would be an increase in provident fund payments

When the basic salary would be increased it would automatically lead to a rise in the proportion of provident fund. Provident fund contribution is cut from the employee salary and provided to them when they leave the job or retire. Provident fund is usually 8 to 10% of the basic take-home pay. When one’s take-home increases, it is bound to increase the contribution towards provident fund and employee gratuity payment.

  1. There would be a reduction in take-home salary

With basic pay being increased, a smaller amount but a contribution towards provident fund and gratuity payments increased as well, it will result in reduced take-home pay.

  1. Overall, the basic pay will have to be increased

Since the basic pay will have to be increased to keep the number of allowances below 50%. Hence in the financial year of the salary, the overall basic pay will increase and the percentage of allowances will decrease.

It is a commonly assumed misconception that after this law comes into effect the salaries will reduce. The salaries are not going to get reduced. There will just be some change in terminology that is used to refer to the salary and its constituents. Because of the change of terminology, the proportion of gratuity payment and the provident fund will increase. In that way, employees will get a lesser salary in hand but the good news is that all of that money is theirs only. So if a person’s salary was Rs.30000, and his allowances come to more than Rs.15000, within that Rs.45000 the restructuring will happen to make sure that basic salary is increased and the allowances are decreased.

The effects of code of wages 2019

The code on wages combined 4 major legislations that were related to labour laws and wages to provide one consolidated code. This code was formed to remove critical provisions of wage protection.

The trade unions and workers for organisations are not exactly elected with this code of wages coming into effect in April. According to them, this policy gives more liberty to employers to hire as well as fire them at a lower cost. They also mentioned that since pro-worker legislation came to an end because of this law, there is less social security employees can experience.

From professionals and experts point of view, this code is a mixed situation. This code has been recognised as a good value for the employers but not for the workers. By following the code of wages, employers can obtain employees to work for more hours.

It is feared that general job security will affect the cause of this code. There will be a reduction in permanent employees and an increase in fixed-term employees. Since fixed employees would also be eligible for the perks enjoyed by permanent employees, the working life of a permanent employee will get threatened hence providing threats to social security of the labourers as well.

But one good thing about this code is that there will be improved clarity for workers with unorganised work. There will be a social security fund for employees who were on gigs and primarily are artists. These people do not have work available all around the year. Hence, to compensate for those, there will be an establishment of that fund.

The employment law has and will continue to change depending on the domestic and worldwide economic situation. All we can do is hope that it rings in favourable circumstances for the employed.

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