How the Code on Social Security 2020 impacts your take-home salary but protects your future

While the intention of the Code on Social Security is to increase the retiral benefits of the employee, this could impact the take-home salary. Here is a closer look at the various aspects of the Code and how its implementation can impact the take-home pay of an employee. Exclusions specified can be further divided into two categories. The first includes the allowances which are subject to a limit of 50 per cent of the remuneration or total wages. This means that these exclusions cannot exceed 50 per cent of the total remuneration. Examples of these are statutory bonuses, variable pay, employer contribution to PF and pension, house rent and conveyance allowances, travel concessions, overtime allowance, commission payable etc. According to the Code on Social Security, if these exclusions exceed 50 per cent of the total remuneration, then such excess (i.e., amount exceeding 50 per cent of the remuneration) has to be considered as wages.

The second part of the exclusion refers to termination related payments such as gratuity, ex-gratia, retrenchment compensation or any other retirement benefit payable and these do not form a part of the wages. These components will not be taken into account to determine wages for the purpose of PF contributions etc.

Benefits in kind can be defined as benefits offered by an employer to his employee which are not expressed in money terms. Examples of these are rent-free accommodation, cab facility provided, free meals etc. As per the Code on Social Security, these components will be included to the extent of 15 percent of total wages.

The Code attempts to ensure that social security benefits, i.e., gratuity, EPF will be calculated on at least 50 percent of overall compensation. While the intention is to increase the retiral benefits, this could impact the take home salary.