Is It Mandatory to Set Basic Pay at 50% of CTC? Seeking Clarity on the 2022 Wage Act

Dear All,

I have come across the 2022 wage act, which mentions that the basic pay should not exceed 50% of the CTC. So, does this mean we have to calculate the basic salary as 50% of the total salary? Currently, we are following 35% of CTC as Basic Pay.

I am seeking clarification on whether there is a mandatory rule stating that we must allocate a minimum of 50% of CTC as Basic pay.

Thank you,

Vidhya

Hello Vidhya,

The 2022 wage act you're referring to is most likely the Code on Wages, 2019, which came into effect in 2022. According to this act, the basic pay (which includes Basic Salary and Dearness Allowance) should constitute at least 50% of the total remuneration or Cost to Company (CTC) of an employee.

This law was implemented to ensure that other allowances do not exceed 50% of the total pay, which can affect the other benefits of an employee like Provident Fund since these are calculated based on the basic pay.

So, if you are currently calculating the basic pay as 35% of the CTC, it would need to be revised to at least 50% as per the new law.

In terms of implementation, you would need to:
1. Review the current salary structure of your employees.
2. Adjust the basic pay to be at least 50% of the total CTC.
3. Ensure that the gross pay (Basic + all the allowances) remains the same as the CTC.
4. Revise the salary structure in your payroll system to reflect the changes.
5. Inform your employees about the change in their salary structure.

I hope this clarifies your query. Please ensure to consult with a labor law expert or legal counsel to understand the full implications of the new wage code on your specific organizational circumstances.

Best regards.