Other trade unions also agree on the suggestion to define wages under the Code on Wages in such a way that the Employees' Provident Fund (EPF) is deducted on the entire gross pay of a worker covered under the social security schemes run by the EPFO.
Industry body CII said, "In the definition of Wages it is mentioned that in case the sum of certain allowances, excluded from Wages, is more than 50 per cent of the total remuneration, then the part which is in excess of 50 per cent will be treated as Wages."
RSS-affiliated Bharatiya Mazdoor Sangh (BMS) on Thursday pitched for the mandatory EPF deduction to be based on 100 per cent of the gross pay, including allowances, which will enhance social security cover for formal sector workers.
Other trade unions also agree on the suggestion to define wages under the Code on Wages in such a way that the Employees’ Provident Fund (EPF) is deducted on the entire gross pay of a worker covered under the social security schemes run by the EPFO.
However, the other unions did not explicitly put this point forward during a tripartite meeting called by the Ministry of Labour and Employment on Thursday which was attended by employers as well as employees’ representatives.
In press release, the BMS said, “In the consultation meeting held by Ministry of Labour on Labour Code Rules, the BMS demanded that the wage definition limiting allowances to 50 per cent of total salary should not be freezed, since it is the mandate of the Supreme Court in Vivekananda vidyalaya case of 2019. Group 4 Security case (of Supreme Court) previously has mandated 100 per cent allowances to be part of salary.”
The new definition of wage provides that the allowance of an employee cannot be more than 50 per cent of the total salary. This would increase the social security deductions like provident fund.
Presently, the employer and employee contribute 12 per cent (of basic wages) each towards the social security schemes run by the Employees’ Provident Fund Organisation (EPFO).
At present, a large number of employers split salaries into numerous allowances to reduce the social security contributions. This helps employees as well as employers. The workers’ take-home pay increases while the employers’ provident fund contribution liability is reduced.
Restricting allowance to 50 per cent of the total pay would also increase employers payout on gratuity payments to those employees who work for more than five years in a firm. The gratuity is also calculated as proportion of the average pay.
The new definition of wages is part of the Code on Wages, 2019 passed by Parliament last year. The rules to enforce the law were also firmed up last year.
Now, its implementation is planned from April 1, 2021 along with other three codes on industrial relations, social security and occupational health safety & working conditions.
Talking to PTI, National Vice President of the Indian National Trade Union Congress (INTUC) Ashok Singh said, “We along with our nine other associate central trade unions did not comment on the wage definition issue specifically in the meeting held today. We have been giving suggestions on same line earlier (for higher EPF deductions).”
According to the BMS statement, apart from it, the other central trade unions like INTUC, TUCC (Trade Union Coordination Centre ) and NFITU (National Front of Indian Trade Unions) also participated in the meeting.
Meanwhile, industry body CII said, “In the definition of Wages it is mentioned that in case the sum of certain allowances, excluded from Wages, is more than 50 per cent of the total remuneration, then the part which is in excess of 50 per cent will be treated as Wages.”
However, CII said it is not clearly mentioned what would constitute total remuneration.
The term total remuneration should be clearly defined so as to avoid any confusion and ensure simplicity and smooth implementation, it added.
“Total remuneration should include those allowances which are ordinarily and regularly paid to an employee on a monthly basis including Basic wages. This may probably be also the intent of the definition,” the CII said.
It also suggested that the statutory bonus should be excluded from the allowances considered for 50 per cent logic check (capping allowance at 50 per cent).
The Rules (on Code on Wages) are silent about the manner in which the benefits is to be treated under ‘wages’ definition, it pointed out.
It suggested that all such benefits which are essentially perquisites and not strictly remuneration should be explicitly excluded from the definition of ‘wages’ and excluded from consideration under total remuneration.
The body also sought clarification about any change in gratuity calculation because of the new definition of wages.