Trending @HCL; 🪙New Labour Law 🪙
Hi all, I understand that the compensation letter has been delayed for quite some time. However, I have heard that if the new labour law is implemented, it may have an impact on our take-home salary. Based on the information shared, employees earning less than ₹10 lakh per annum may be affected to a lesser extent, whereas those earning around ₹15 lakh per annum could see a reduction of approximately 7% in their take-home salary. This would effectively result in a decrease in monthly in-hand pay. Many of us already have significant financial commitments, and by the end of the month, most employees are left with only ₹2,000–₹3,000 after meeting their expenses—some even with a zero balance. In such a situation, a reduction in take-home pay would be quite challenging. During the All Hands meeting, HCLTech mentioned that around ₹500 crore has been spent on restructuring. Does this indicate that the organization is trying to absorb the impact and maintain employees’ take-home salary, so that employees are not adversely affected? I would appreciate hearing your thoughts and any clarity on this matter. Thank you.
In case, someone needs more information on this. Refer to this.
Understanding the "₹X Crore" Provision Charge.
​The large charges you see in company financial reports (e.g., "₹500 crore provision for new Labor Codes") are accounting entries, not immediate cash payments. This is a balance sheet adjustment to comply with the upcoming Code on Wages, 2019, specifically regarding how "Wages" are defined.
​Here is the breakdown of how it works and why the numbers look so large:
​1. The Core Impact: Gratuity and Leave Encashment
​The primary reason for these massive financial entries is the redefinition of "Wages." Under the new code, the Basic Pay component must constitute at least 50% of the total remuneration.
​Gratuity and Leave Encashment are calculated based on Basic Pay.
​When Basic Pay increases to meet the 50% threshold, the calculation base for these benefits rises significantly.
​Leave Encashment Note: While often considered "out of CTC" (variable/benefit-based rather than fixed monthly income), it is a liability the company must account for. As the base salary definition changes, the value of every accumulated leave day increases, requiring a higher provision.
​2. The "Old Timer" Effect (Retroactive Adjustment)
​This is the main driver of the massive one-time charges. Companies cannot just apply the new rules to future years; they must adjust for the past.
​If a long-serving employee has worked for 15 years, the company had previously set aside money (provisioned) for their gratuity based on a lower Basic Pay.
​With the new definition, the company must now "top up" the gratuity provision for those past 15 years to match the new, higher Basic Pay.
​This results in a sudden, heavy accounting charge in a single financial quarter to cover the deficit for all past years of service.
​3. How the Accounting Works (Actuarial Valuation)
​Companies use a method called Actuarial Valuation to estimate these future liabilities.
​Provisioning: The company calculates how much they might owe you in the future based on the new rules. They deduct this amount from their current profits (creating a "Provision") to ensure their liability is accurately reflected on the books.
​Cash Flow vs. Book Profit: This lowers the reported profit (and Earnings Per Share/EPS), but no cash leaves the bank at this moment. The company keeps the actual cash until the day you resign or retire.
​4. The "Write Back" (Employee Turnover)
​There is a distinct mechanism regarding employees who leave before they qualify for these benefits.
​Vesting Period: In India, Gratuity generally requires 5 years of continuous service to vest (become payable).
​Reversal: If an employee leaves the company after 3 years, they are not eligible for the gratuity money the company had provisioned for them.
​Impact: The company then "writes back" that provision. The money that was previously categorized as a liability is returned to the books as profit in a later quarter.
That ₹500cr figure is just a provision (accounting entry), not actual cash spent on employees. Companies prioritize acquisitions, not us. ​They minimize real costs like Gratuity and Leave Encashment using timing tactics. Example: HCL releasing letters after the payroll cutoff means leave encashment is paid on the old salary. Since Gratuity is also based on current salary, delaying hikes reduces the payout for anyone leaving after the 4-year-192-day mark. They are saving cash, not spending it.
Wow nice thoughts
Money spent on hiring external resources for restructuring and not on the employees
