As per the new wage code, the basic should be 50% of the total salary. So in implementing the same there is a gap in gratuity calculation as there is a difference between current basic salary and revised basic salary. And the difference is being recovered from employees by adjusting leaves/encashing leaves/increments.

Is it a fair practice as employees are at a great loss as they are losing their money? The government should look into this matter.



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Dear Tushar,

The point you have raised is not clear to me.
First, the Code on Wages,2019 has not yet been enforced.
Second, had your organization started restructuring the existing salary of your employees as per sec.2(y) of the Code in anticipation of its enforcement? If so, what is the current cadre-wise componential structure and the percentage of each component to the gross wages/salary payable at the end of the wage period?
Third, even if you keep your salary structure as it is after the Code comes into force, if the proportion of the excluded components exceed 50% of the gross salary payable, the excess should be automatically added to the basic for the calculation of gratuity and other indirect benefits. Then how comes the question of recovery from the employees?

From India, Salem
Dear Sir,

Thanks for your prompt response.
My point is that suppose any employees's previous basic is around 23000 (when gross salary is around 70000).Now his basic is around 35000 (after restructuring under wage code).

Gratuity calculation for 10 years when basic is 23000 is 132692 (employee continuing)
Gratuity calculation for 10 years when basic is 35000 is 201923 (employee continuing)
This difference (201923- 132692= 69230 is being recovered from employees which is not under wage code,This is a loss for employees.

This recovery should be stopped
hope you understand my point

Rgds
Tushar


Dear Tushar,

The entire episode of proposed recovery starts from the misinterpretation of the term ' wages' as defined u/s 2(y) of the Code on Wages, 2019 which is yet to be enforced.

Perhaps your management adopts the principles of CTC in wage and salary administration. Sorry, given the general parameters to calculate the CTC, it cannot be straight away and completely applied to the concept of wages which is the actual and basic monetary consideration payable under the contract of employment for the services rendered by the employee. This is the employee perspective on of the term wages. Since other indirect benefits which are statutorily required to be given or offered by the employer to retain the employees do not form part of the actual wages. If you critically analyse the definition u/s 2(y), you will understand the reasoning behind the demarcation between the included and excluded components enumarated therein. Unfortunately, many employers treat the CTC as the yard stick for the cost of labor though it contains the actual cost of labor, incidental cost of statutory obligations in respect of labor subject to certain conditions and the discretionary cost of retention of labor. If you mess up these things by pooling together to arrive at the overall cost towards employees, certainly you will have to trim the foot to fit the shoes only.

The statutory compulsion of maintaining a certain proportionality between the two sets of components is to curb the exploitation of reducing the actual wages comprising of the basic components from which the excluded items are derived. Therefore, only the components payable with the basic wages at the end of the wage period should be taken into account for the purpose of determining proportionality and not otherwise just because they are payable.

If you notice carefully, gratuity is taken out of the excluded components for the above purpose. That apart statutory gratuity does not require any contribution from the employee. It is a one-time-lumpsum payable by the employer only on the occasion of termination of employment.

Therefore, the deduction proposed is totally illegal.

From India, Salem
Dear colleague,

Mr Umakanhan is right. What is not understood is since new Wage Code is not implemented yet, where is the compulsion to restructure wages in line with that? And if restructure is implemented of your own volition , and as a result if higher amount of gratuity becomes payable , where is the the question of recovering additional amount from him ?
Sounds ridiculous and patently illegal.

Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant

From India, Mumbai
Dear Tushar,

In your first post you have mentioned that Basic should be 50% of Total Salary but in your subsequent post you have mentioned Basic is 50% of gross salary ( if I am not wrong , you would like to mean 50% of monthly gross ). To my opinion 50% of Total salary ( which are payable to any employee including Co's contribution to PF, LTC/LTA, Bonus, OT etc. etc. are included which are not included in monthly gross ) is the right interpretation of definition of wages as per different labour codes ( definition is same in everywhere ).

Now, come to gratuity problem. It is obvious that after restructuring of the remuneration package as per Wage code, Basic will increase and accordingly the gratuity amount will also increase. But as on date and even in future after implementation of all labor codes, no where it is mentioned that Gratuity amount to paid by deducting from employee salary. Many organization includes gratuity as a part of CTC that does not mean that gratuity will be deducted from employee salary. Most challenging thing after implementation of labor codes will be Remuneration package restructuring. But under any circumstances gratuity will not be paid by deducting from employee salary- it will be absolutely illegal.

Thanks & regards,

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions,
+91 98310 81531

USD HR Solutions – To Strive towards excellence with effort and integrity

From India, New Delhi
Dear All,

Thank you all for your valuable response. As the unfair practice (adjusting the gratuity difference from salary of employees) is being taken up by many companies,the question is now that how it can be corrected through Govt/administration as single employee can not go against the company.

Thanks and Regards
Tushar


Dear Tushar,

Will you please mention one case where employer is adjusting gratuity from employee salary with detail calculation. For your ready reference I am citing one example for you :-

ITEM EXISTING AFTER WAGE CODE IMPLEMENTATION

BASIC 20,000 35,433
HRA 10,000 10,000
SPL.ALLOW 20,000 4,567
MNLY GROSS 50,000 50,000
YRLY GROSS 6,00,000 6,00,000
YRLY PF EMPR(ON 15,000/-) 21,600 21,600
LTA 1,00,000 1,00,000
BONUS (20% OF 12,000/-) 28,800 NIL
RETENTION BONUS 1,00,000 1,00,000
YRLY CASH COMPONENT 8,50,400 8,21,600
GRATUITY 11,538 20,442
CTC 8,61,938 8,42,042

New Basic is arrived by making 50% of cash component. Here CTC has come down due to absence of Bonus in proposed calculation due to basic increase more than 21,000/-.

To my opinion there will be several such conditions will vary from organizations to organizations after implementation of wage code. There is nothing wrong in new remuneration fixation.

Thanks & Regards,

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531

USD HR Solutions – To Strive towards excellence with effort and integrity

From India, New Delhi
In the above example, first data is existing and 2nd data is after implementation of wage code. S K Bandyopadhyay(WB, Howrah)
From India, New Delhi

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