New Wage Code which consolidates 4 acts governing employee/employer relations into one act is expected to come into force in near future. Implementation of the act required ratification by all state governments which can be a complex problem but it has been accomplished now.
The new code mandates that basic wages has to be at least 50% of the total pay. Employer contribution to PF is determined by the basic pay so some companies used to fix the the basic pay at a low level and allowances at a higher level to reduce their contribution to PF. This will now be regulated. This in theory would decrease net take home of employees but increase the costs for the employer. However it increases the long term savings of the employee so is overall very employee friendly. However you can expect most employers to tweak their salary structures to minimize their cost escalation.
Most analysts believe this to be the biggest fallout of the new code. However we believe that the 48 hour F&F requirement is by far the most revolutionary aspect of this code.
If implemented without any further changes it will fundamentally change the dynamics between the employer and the employee particularly in bands where notice periods are not sacrosanct.
Employer/Employee relationship is primarily governed by the employment contract but law of the land governs the threshold. Notice periods were earlier reserved only for manager level employees but the great tech boom of 90’s changed it. There was a very high demand for tech employees and companies introduced notice periods & bonds even for freshers. Bonds were justified as return for training provided to the freshers. The notice periods then moved from 30 days to 60 days and finally 90 days. This notice period is meant to give the employer the elbow room for searching for better candidates and even transfer knowledge in some cases.
On the flip side, many employees have been known to skip the notice period. There is a term “Absconding employees” that has been coined for these employees. Organizations have used F&F as a tool against this category by first setting a 45 day timeline for F&F and then withholding the F&F altogether.
Unfortunately it sometime becomes a norm for the organization and an excuse for inefficiency. So what became a practice to deal with capriciousness of a handful of employees now impacts almost everyone.
“Absconding Employees” is also the only major pushback against the concept of “On-Demand” salary. I believe we underestimate the ethics of our society by worrying about a handful. Similar attitudes prevailed when e-commerce companies introduced a “No Question Asked” return policy. Majority of Indians thought that it will be abused but trusting customers helped these companies earned the trust of their customers.
In any case, the new wage code mandates that the F&F be completed within 48 hours of employee’s last working day after their resignation or termination of employment services. This will be particularly problematic for companies without a robust daily attendance management system. I am sure that industry will find ways to implement this but it will surely change the dynamics till the equilibrium is reached again after sometime.