Government Clears Confusion on PF, Salary, and Gratuity; Seeks Public Suggestions

New Delhi: The government has released the draft of the new labour codes, aiming to bring clarity on several employment-related issues, including provident fund (PF) contributions, salary structure, and gratuity calculations. Public feedback has been invited, giving citizens 45 days to submit objections or suggestions. Until the new rules are fully implemented, existing regulations will continue to apply, provided they align with the new codes. For industrial relations, stakeholders have 30 days to respond.

Unified Definition of Salary
A significant change under the new labour codes is the uniform definition of “salary” across all four codes. The definition now includes basic pay, dearness allowance, and retaining allowance. Allowances exceeding 50% of total earnings (excluding gratuity and retrenchment benefits) will be considered for statutory calculations. Performance-linked incentives, however, will not be treated as part of the salary.

Gratuity Calculations Simplified
According to Puneet Gupta, Partner at EY India (People Advisory Services – Tax), the draft provides much-needed clarity on operational matters awaited by employers. For instance, under the Code on Social Security, gratuity will be calculated based on the employee’s last drawn salary. Components such as annual performance-based pay, medical reimbursements, stock options, and meal vouchers will not be included. This clarification will help companies estimate gratuity liabilities more accurately.

Work Hours, Overtime, and Employee Welfare
The Code on Occupational Safety, Health, and Working Conditions introduces key provisions regarding overtime and work conditions. Employees working more than 48 hours a week will be entitled to double pay. Employers must ensure that no employee works more than ten consecutive days and that they receive adequate rest days. These measures aim to balance productivity with employee welfare, Puneet Gupta added.

Other Notable Provisions

• Employees aged 40 and above, particularly in factories, docks, mines, and construction sites, will undergo annual medical examinations.
• Where crèche facilities are unavailable, employees will receive a minimum ₹500 crèche allowance per child.
• Travel allowances are mandated for inter-state migrant workers.

Alongside the draft, the government has also released an FAQ detailing the interpretation of labour codes, definitions of salary, and gratuity calculations, ensuring transparency and clarity for both employers and employees.