Our organization is undergoing a revision in the salary structure. Under the new system, there is a probability that for a few employees, the basic salary may decrease from their present basic salary, though their gross will either not change or may increase. The employees so affected are also okay with the change.
I want to know whether this is okay as per the law or not because PF/Gratuity etc. will be affected. Can there be any problem from the PF authorities, or will it violate the law? In this regard, please be informed that in the appointment letters of all the employees, it has been mentioned that there may be changes in policies, including compensation & benefits policy of the company from time to time, and the same will be binding on the employees.
Please shed some light on it.
Thank you.
Regards,
Soma.
From India, Kolkata
3I want to know whether this is okay as per the law or not because PF/Gratuity etc. will be affected. Can there be any problem from the PF authorities, or will it violate the law? In this regard, please be informed that in the appointment letters of all the employees, it has been mentioned that there may be changes in policies, including compensation & benefits policy of the company from time to time, and the same will be binding on the employees.
Please shed some light on it.
Thank you.
Regards,
Soma.
From India, Kolkata
Hi Soma,
As per PF Law, your monthly contribution should not be reduced in any month (except for absences). Doing so will lead to a PF inspection, based on which you will be considered a defaulter and asked to pay the difference amount with a penalty. This may also cause issues when calculating bonuses, leave encashment, gratuity, and their submission.
Companies often include clauses in the appointment letter that favor their system, however, compliance is not just a policy but a legal requirement that must be followed by all individuals, firms, and proprietors.
Regards,
Nilesh CB
From India, Mumbai
As per PF Law, your monthly contribution should not be reduced in any month (except for absences). Doing so will lead to a PF inspection, based on which you will be considered a defaulter and asked to pay the difference amount with a penalty. This may also cause issues when calculating bonuses, leave encashment, gratuity, and their submission.
Companies often include clauses in the appointment letter that favor their system, however, compliance is not just a policy but a legal requirement that must be followed by all individuals, firms, and proprietors.
Regards,
Nilesh CB
From India, Mumbai
Mr. Nilesh,
Thank you very much for the response. Will the same be applicable if the employee is on a fixed-term contract and we issue him a fresh contract with the revised structure where the basic comes down?
Regards,
Soma.
From India, Kolkata
Thank you very much for the response. Will the same be applicable if the employee is on a fixed-term contract and we issue him a fresh contract with the revised structure where the basic comes down?
Regards,
Soma.
From India, Kolkata
Dear Somadas,
Section 72 of the ESI Act and Section 12 of the EPF Act restrict employers from reducing wages, which results in a reduction of contributions. The best way is to treat the amount of difference in basic as personal pay at par with the basic for the purpose of EPF, ESI, Bonus, Gratuity, etc., until the next revision or compensation policy.
VARGHESE MATHEW
09961266966
From India, Thiruvananthapuram
Section 72 of the ESI Act and Section 12 of the EPF Act restrict employers from reducing wages, which results in a reduction of contributions. The best way is to treat the amount of difference in basic as personal pay at par with the basic for the purpose of EPF, ESI, Bonus, Gratuity, etc., until the next revision or compensation policy.
VARGHESE MATHEW
09961266966
From India, Thiruvananthapuram
Dear Somadas,
If I understood correctly, your employer is "restructuring" your salaries, "reducing the Basic" but without reducing the overall Gross Salary. Am I correct? If yes, there is nothing wrong, except for caution where certain benefits are calculated based on a certain percentage of the "Basic Pay," and some seniority issues may arise when based on Basic pay. If these are taken care of, it's okay only when you are not losing anything that is already in vogue. Probably we can judge impacts better if you can provide us with the pre-revised and revised structure for a juxtaposed study of the proposal.
Kumar.S.
From India, Bangalore
If I understood correctly, your employer is "restructuring" your salaries, "reducing the Basic" but without reducing the overall Gross Salary. Am I correct? If yes, there is nothing wrong, except for caution where certain benefits are calculated based on a certain percentage of the "Basic Pay," and some seniority issues may arise when based on Basic pay. If these are taken care of, it's okay only when you are not losing anything that is already in vogue. Probably we can judge impacts better if you can provide us with the pre-revised and revised structure for a juxtaposed study of the proposal.
Kumar.S.
From India, Bangalore
Dear Soma,
In case of, and only in the case of Fixed Term Contract employees, a change in wage structure may not pose any problems. However, ensure that both parties have agreed to it willingly, and that the new contract has been drawn up in lieu of the earlier one which stands terminated upon mutual consent.
Warm regards.
From India, Delhi
In case of, and only in the case of Fixed Term Contract employees, a change in wage structure may not pose any problems. However, ensure that both parties have agreed to it willingly, and that the new contract has been drawn up in lieu of the earlier one which stands terminated upon mutual consent.
Warm regards.
From India, Delhi
Please note that reducing basic salary is not legally acceptable. Basic is an important component of salary and based on basic all statutory deductions are made. Jayaraman
From India, Chennai
From India, Chennai
Dear Soma ji,
I endorse the response by Nilesh ji, Varghese ji, and Jayaraman ji. I do not agree with the views of Kumar ji and Raj Kumar ji, with all due respect to them.
You cannot reduce the basic component of any employee, even if they agree to it willingly. The basic component cannot be reduced under any circumstances, except in the case of a decrease in DA due to a fall in CPI, which is very rare.
From India, Mumbai
I endorse the response by Nilesh ji, Varghese ji, and Jayaraman ji. I do not agree with the views of Kumar ji and Raj Kumar ji, with all due respect to them.
You cannot reduce the basic component of any employee, even if they agree to it willingly. The basic component cannot be reduced under any circumstances, except in the case of a decrease in DA due to a fall in CPI, which is very rare.
From India, Mumbai
You may want to try increase only Special/other allowance component, and NOT chaging the basic, going fwd while increasign the CTC, untill the basic sal % of gross come down to the % you decided now.
From United States, Ogden
From United States, Ogden
Dear Keshav,
Thanks for your input, and accordingly, I stand corrected.
My comment was ONLY restricted to Fixed Term Contract employees, wherein the tenure and the emoluments are totally based on negotiations.
I do not have any first-hand experience of any situation where there has been a reduction in basic pay of employees (except a few cases by way of PUNISHMENT by the Competent Authority consequent upon departmental enquiries and findings). Such cases are there aplenty in PSUs and Government service also.
However, I know of a case of an FTC consultant whose contract was terminated midway. Later on, a new contract was drawn up with much lesser emoluments.
Therefore, I request you to please reconsider your statement:
"You cannot reduce the basic component under any circumstances except in decrease of DA due to a fall of CPI which is very rare."
Moreover, DA is an entirely different component and not a part of Basic Pay. That is the reason one finds both of these mentioned separately but together, like Basic Pay plus DA.
However, I agree with the gist of you and others' statement on the reduction of basic pay. The exceptions are only there to prove the General Rule.
Warm regards.
From India, Delhi
Thanks for your input, and accordingly, I stand corrected.
My comment was ONLY restricted to Fixed Term Contract employees, wherein the tenure and the emoluments are totally based on negotiations.
I do not have any first-hand experience of any situation where there has been a reduction in basic pay of employees (except a few cases by way of PUNISHMENT by the Competent Authority consequent upon departmental enquiries and findings). Such cases are there aplenty in PSUs and Government service also.
However, I know of a case of an FTC consultant whose contract was terminated midway. Later on, a new contract was drawn up with much lesser emoluments.
Therefore, I request you to please reconsider your statement:
"You cannot reduce the basic component under any circumstances except in decrease of DA due to a fall of CPI which is very rare."
Moreover, DA is an entirely different component and not a part of Basic Pay. That is the reason one finds both of these mentioned separately but together, like Basic Pay plus DA.
However, I agree with the gist of you and others' statement on the reduction of basic pay. The exceptions are only there to prove the General Rule.
Warm regards.
From India, Delhi
Dear Raj Kumar Ji,
With due respect to you, sir, I submit my views as follows:
Even in FTC, there should not be a reduction in emolument. Negotiations should be for a higher emolument.
I too have heard about the reduction in basic pay by way of PUNISHMENT by the Competent Authority in PSU and Government services. But in the private sector, there is no such reduction in basic pay by way of PUNISHMENT.
In the case of an FTC consultant, you can negotiate for lesser emolument. However, in the case of an FTC employee, you cannot.
I do not agree with you. According to my view, DA is a part of the salary. Salary means basic plus DA. We need not mention the DA separately. Therefore, we call it a basic consolidated component also. In one of the postings by B. Saikumar (who is one of the learned contributing members of this forum), it is rightly said by him that the DA is that part of the component of salary which is meant for neutralizing the erosion of basic wages by the cost of inflation.
From India, Mumbai
With due respect to you, sir, I submit my views as follows:
Even in FTC, there should not be a reduction in emolument. Negotiations should be for a higher emolument.
I too have heard about the reduction in basic pay by way of PUNISHMENT by the Competent Authority in PSU and Government services. But in the private sector, there is no such reduction in basic pay by way of PUNISHMENT.
In the case of an FTC consultant, you can negotiate for lesser emolument. However, in the case of an FTC employee, you cannot.
I do not agree with you. According to my view, DA is a part of the salary. Salary means basic plus DA. We need not mention the DA separately. Therefore, we call it a basic consolidated component also. In one of the postings by B. Saikumar (who is one of the learned contributing members of this forum), it is rightly said by him that the DA is that part of the component of salary which is meant for neutralizing the erosion of basic wages by the cost of inflation.
From India, Mumbai
Basic can be reduced by awarding punishment of withholding of increment in a disciplinary proceeding, not otherwise. It is possible not only in the public sector but also in the private sector if the standing orders provide for it.
VARGHESE MATHEW
09961266966
From India, Thiruvananthapuram
VARGHESE MATHEW
09961266966
From India, Thiruvananthapuram
Dear Keshav,
Thanks for taking pains to clarify certain points to the maximum extent possible. I appreciate your inputs. All these discussions on the finer points will surely enrich our members. However, having gone to the farthest point; let us now come to the original query and restrict ourselves within its purview. Here, the member is talking about a systemic, unilateral reduction in salary across the organization, and I think this point has now been more than adequately covered.
Hope you agree on this.
Warm regards.
From India, Delhi
Thanks for taking pains to clarify certain points to the maximum extent possible. I appreciate your inputs. All these discussions on the finer points will surely enrich our members. However, having gone to the farthest point; let us now come to the original query and restrict ourselves within its purview. Here, the member is talking about a systemic, unilateral reduction in salary across the organization, and I think this point has now been more than adequately covered.
Hope you agree on this.
Warm regards.
From India, Delhi
Dear Soma,
As "Basic Pay" and Gross (Total Salary or total emoluments), CTC are two different terms, you should clarify these in your query to have a clear understanding. In any case, there cannot be any reduction in the present Gross (Salary). However, restructuring the Basic & DA and other allowances without an overall reduction in gross is possible.
Kumar.S.
From India, Bangalore
As "Basic Pay" and Gross (Total Salary or total emoluments), CTC are two different terms, you should clarify these in your query to have a clear understanding. In any case, there cannot be any reduction in the present Gross (Salary). However, restructuring the Basic & DA and other allowances without an overall reduction in gross is possible.
Kumar.S.
From India, Bangalore
What I mentioned is a workmen can be awarded the punishment of withholding of increment/s or reduction to lower scale .In both cases the basic is reduced. VARGHESE MATHEW
From India, Thiruvananthapuram
From India, Thiruvananthapuram
Dear Varghese ji,
I have not differed with you. I again repeat, in PSU/Govt. Sector I have seen the reduction in wages/basic wages but not in the private sector. If you know of any such case in the private sector, I request you to share it with me. Based on my understanding and knowledge, in the private sector, there is no permission to reduce the wages/basic wages. Certified SOs cannot have such a provision unless someone takes advantage of Sr.11 in the schedule of the SO Act which states: "any other matter which may be prescribed".
According to the SO Act, punishment may be: i. warning/censuring; ii. fine in accordance with the provisions of the POW Act; iii. suspension for not more than 4 days; or iv. dismissal.
Please consider this as a sharing of knowledge. If I am wrong, feel free to correct me.
From India, Mumbai
I have not differed with you. I again repeat, in PSU/Govt. Sector I have seen the reduction in wages/basic wages but not in the private sector. If you know of any such case in the private sector, I request you to share it with me. Based on my understanding and knowledge, in the private sector, there is no permission to reduce the wages/basic wages. Certified SOs cannot have such a provision unless someone takes advantage of Sr.11 in the schedule of the SO Act which states: "any other matter which may be prescribed".
According to the SO Act, punishment may be: i. warning/censuring; ii. fine in accordance with the provisions of the POW Act; iii. suspension for not more than 4 days; or iv. dismissal.
Please consider this as a sharing of knowledge. If I am wrong, feel free to correct me.
From India, Mumbai
Dear All my seniors,
I am extremely thankful to you all for sharing your knowledge and enriching me. I genuinely appreciate your kind efforts to clarify my doubts. However, I will seek a little further guidance from your end.
First, let me clarify the exact condition in my organization. In the Standing Orders of my company, it is mentioned that the salary structure is subject to revision every 5 years. The same point is included in the appointment letters of all the employees, both regular and on FTC. As per the existing salary structure, the range of basic was fixed for each of the grades with other components of the gross salary being adjusted accordingly. Now, the management wishes to revise the structure, due to revision in the coming FY, and fix the range of the gross for each grade instead of the basic. The basic and other components will be decided as certain percentages of the gross. In doing so, the existing gross will not decrease. Though the majority of people will not suffer, there will be a few instances where the basic salary, if calculated as a % of the gross, will become less than the existing basic as per the present structure. This is happening in both the regular & FTC cases.
For example, presently Mr. X gets a gross salary of Rs.5000/- where the basic is Rs.3000/- and other allowances are Rs.2000/-. Now, in the revised structure, the gross range for his grade has been fixed at 5,000/- to 10,000/- and basic will be calculated at 30% of the gross. If Mr. X gets an increment of Rs.1000/-, then his gross becomes Rs.6000/- and the basic will become 1800/-, which is less than Rs. 3000/-.
Now, if the basic cannot be decreased, then how can the balance Rs.1200/- be adjusted? You are kindly requested to suggest any remedial action for such cases only. Please be informed that the company is not going to reduce the salaries in general but wants to implement the revised structure in the annual appraisal.
With regards,
Soma.
From India, Kolkata
I am extremely thankful to you all for sharing your knowledge and enriching me. I genuinely appreciate your kind efforts to clarify my doubts. However, I will seek a little further guidance from your end.
First, let me clarify the exact condition in my organization. In the Standing Orders of my company, it is mentioned that the salary structure is subject to revision every 5 years. The same point is included in the appointment letters of all the employees, both regular and on FTC. As per the existing salary structure, the range of basic was fixed for each of the grades with other components of the gross salary being adjusted accordingly. Now, the management wishes to revise the structure, due to revision in the coming FY, and fix the range of the gross for each grade instead of the basic. The basic and other components will be decided as certain percentages of the gross. In doing so, the existing gross will not decrease. Though the majority of people will not suffer, there will be a few instances where the basic salary, if calculated as a % of the gross, will become less than the existing basic as per the present structure. This is happening in both the regular & FTC cases.
For example, presently Mr. X gets a gross salary of Rs.5000/- where the basic is Rs.3000/- and other allowances are Rs.2000/-. Now, in the revised structure, the gross range for his grade has been fixed at 5,000/- to 10,000/- and basic will be calculated at 30% of the gross. If Mr. X gets an increment of Rs.1000/-, then his gross becomes Rs.6000/- and the basic will become 1800/-, which is less than Rs. 3000/-.
Now, if the basic cannot be decreased, then how can the balance Rs.1200/- be adjusted? You are kindly requested to suggest any remedial action for such cases only. Please be informed that the company is not going to reduce the salaries in general but wants to implement the revised structure in the annual appraisal.
With regards,
Soma.
From India, Kolkata
Dear Soma,
This is exactly what I was predicting. However, normally the structure is made first with the Basic and then other allowances as a percentage on the basic. For example, DA could be 30% of basic, HRA 20% of basic, City allowance 10% of basic, Conveyance 10% of basic, and so on. Your firm, on the other hand, is trying the other way around, putting the cart behind the horse. Generally, this pattern is followed in the government and government-controlled PSUs, autonomous establishments, educational institutions, etc., where government guidelines are adopted in the matter of pay fixation and allowances. Even in the private sector, modern establishments follow the concept of CTC these days. Nevertheless, your attempted restructure should not cause any problems for EPF, ESI, Pension, Gratuity, etc., as these are not calculated on the basic pay but on the salary, where the gross includes basic pay + other defined allowances regardless of their names. So, there cannot be any ambiguity except that there could be some embarrassment among those whose basic pay is revised downwards as it may seem they have been downgraded by the hidden effect. By the way, what pattern of DA are you going to follow, is it based on government-declared CPI/WPI-based indices or something else? I think your firm could have applied their mind to breaking down 'other allowances' as well, as it would be necessary for statutory compliance purposes.
Regards,
Kumar S.
From India, Bangalore
This is exactly what I was predicting. However, normally the structure is made first with the Basic and then other allowances as a percentage on the basic. For example, DA could be 30% of basic, HRA 20% of basic, City allowance 10% of basic, Conveyance 10% of basic, and so on. Your firm, on the other hand, is trying the other way around, putting the cart behind the horse. Generally, this pattern is followed in the government and government-controlled PSUs, autonomous establishments, educational institutions, etc., where government guidelines are adopted in the matter of pay fixation and allowances. Even in the private sector, modern establishments follow the concept of CTC these days. Nevertheless, your attempted restructure should not cause any problems for EPF, ESI, Pension, Gratuity, etc., as these are not calculated on the basic pay but on the salary, where the gross includes basic pay + other defined allowances regardless of their names. So, there cannot be any ambiguity except that there could be some embarrassment among those whose basic pay is revised downwards as it may seem they have been downgraded by the hidden effect. By the way, what pattern of DA are you going to follow, is it based on government-declared CPI/WPI-based indices or something else? I think your firm could have applied their mind to breaking down 'other allowances' as well, as it would be necessary for statutory compliance purposes.
Regards,
Kumar S.
From India, Bangalore
Dear Sir (Mr. Kumar S.),
Thank you so much for your kind response. Requesting you to kindly suggest a suitable way of calculating the salary where we can have a pre-decided gross and the components as a percentage break-up without violating the statutory requirements. We do have the government CPIs, but would like to understand how to calculate the DA based on the same. Please help me.
Regards,
Soma.
From India, Kolkata
Thank you so much for your kind response. Requesting you to kindly suggest a suitable way of calculating the salary where we can have a pre-decided gross and the components as a percentage break-up without violating the statutory requirements. We do have the government CPIs, but would like to understand how to calculate the DA based on the same. Please help me.
Regards,
Soma.
From India, Kolkata
Hi Soma,
As far as I can see, there is no specific provision in the law that you cannot reduce the basic or even the total salary that you pay to an employee. Make sure that the basic + DA + Special Allowance is more than the minimum wages. The only other rule that applies is that the amount of PF cannot be reduced. However, even that rule applies only for the statutory limit of PF amounting to Rs. 780 per month. If your basic is above 6500 per month, then the reduction will not affect PF.
That said, there are other factors that apply.
If you reduce wages, it can result in an industrial dispute.
In your case, the agreement is being approved by the employees and the union, so that would not be a problem. In general, employees are more concerned about take-home pay rather than basic.
Sometimes people try to make trouble simply by taking advantage of a gap they perceive. So you may have an investigation by the authorities who will harass you on this matter. One way out is to get the approval of the concerned labor officer for your settlement.
From India, Mumbai
As far as I can see, there is no specific provision in the law that you cannot reduce the basic or even the total salary that you pay to an employee. Make sure that the basic + DA + Special Allowance is more than the minimum wages. The only other rule that applies is that the amount of PF cannot be reduced. However, even that rule applies only for the statutory limit of PF amounting to Rs. 780 per month. If your basic is above 6500 per month, then the reduction will not affect PF.
That said, there are other factors that apply.
If you reduce wages, it can result in an industrial dispute.
In your case, the agreement is being approved by the employees and the union, so that would not be a problem. In general, employees are more concerned about take-home pay rather than basic.
Sometimes people try to make trouble simply by taking advantage of a gap they perceive. So you may have an investigation by the authorities who will harass you on this matter. One way out is to get the approval of the concerned labor officer for your settlement.
From India, Mumbai
Dear Sir, Thank you very much for the kind explanation. Sir, may I request your kind-self to guide me on how to calculate DA from CPI. With regards, Soma.
From India, Kolkata
From India, Kolkata
Generally, the notification from the government will outline how much DA is to be given. In the case of minimum wages, the increase is specified. You can apply the same ratio of increase in DA for minimum wages to the wages you are paying.
DA increases are announced every 2-3 months by the government, separately for urban, rural, and industrial workers. The government also announces DA increases for central government employees. You can obtain this information from NIC and published reports in newspapers.
From India, Mumbai
DA increases are announced every 2-3 months by the government, separately for urban, rural, and industrial workers. The government also announces DA increases for central government employees. You can obtain this information from NIC and published reports in newspapers.
From India, Mumbai
Dear Soma,
I have attached a few notes on the history of DA, especially followed in the government sector, unionised industrial houses, etc., the recent salient features of WPI & CPI, and indices applicable for the present and notification together with the links which would help you to surf through relevant information and guidance. If you have to follow the government pattern of pay, scales of pay, FDA, VDA, and other allowances, you should buy a copy of "Swamy's Handbook 2013" from the book sellers where you'll get all information about pay, DA, allowances, tax matters, and so many other aspects of the law. If you have any specific queries, you may raise them here.
All the best.
Kumar S.
From India, Bangalore
I have attached a few notes on the history of DA, especially followed in the government sector, unionised industrial houses, etc., the recent salient features of WPI & CPI, and indices applicable for the present and notification together with the links which would help you to surf through relevant information and guidance. If you have to follow the government pattern of pay, scales of pay, FDA, VDA, and other allowances, you should buy a copy of "Swamy's Handbook 2013" from the book sellers where you'll get all information about pay, DA, allowances, tax matters, and so many other aspects of the law. If you have any specific queries, you may raise them here.
All the best.
Kumar S.
From India, Bangalore
Dear Sirs (Mr. Banerjee & Kumar S.),
Please accept my sincere thanks for the valuable guidance and inputs provided by you. This will definitely help me a lot to complete my assignment.
With regards,
Soma.
From India, Kolkata
Please accept my sincere thanks for the valuable guidance and inputs provided by you. This will definitely help me a lot to complete my assignment.
With regards,
Soma.
From India, Kolkata
I have checked the Minimum Wages and found that the basic + DA for most executive positions is over 7000, i.e., (Basic 5000/5500+ DA1576/1600). These rates were sourced from Maharashtra Minimum Wages Jan 2013-June 2013. Can an organization have a basic pay lower than the mentioned amount for such positions? I am still confused. Can any organization have basic pay at 1800/2000/3000, etc.? Would that not go against statutory compliance?
raga
From India, Mumbai
raga
From India, Mumbai
This matter is being debated in court at the moment. However, according to me, where the notification clearly lays down how much the minimum wages are in terms of basic and DA, you have no justification really in having it lower.
From India, Mumbai
From India, Mumbai
Dear all,
Reducing the basic salary/wage of an individual to whom the Industrial Disputes Act applies, whether it affects his gross salary/wage or not, will amount to a change in the conditions of his service and will constitute a violation of Section 9A of the Industrial Disputes Act.
With regards,
From India, Madras
Reducing the basic salary/wage of an individual to whom the Industrial Disputes Act applies, whether it affects his gross salary/wage or not, will amount to a change in the conditions of his service and will constitute a violation of Section 9A of the Industrial Disputes Act.
With regards,
From India, Madras
Does that hold true where the workers are agreeing to the restructuring ? This is (from what the post says), not an unilateral action
From India, Mumbai
From India, Mumbai
Dear friend,
There are no rules or guidelines legally prescribing how much the basic pay should be, as well as the amount of DA and other allowances. The minimum wages under the act represent the total emoluments, i.e., the gross salary or wages. This means that the Minimum Wages Act does not specify the breakdown of basic pay, DA, and other allowances. There is no restriction stating that the basic pay should exceed the DA or vice versa. In fact, many organizations, banks, etc., have their DA and allowances exceeding the basic pay.
There have been instances where DA is reduced in cases of "reverse inflation," but it is rare for basic pay to be decreased, typically reserved for disciplinary action. In certain cases, individuals found guilty may be demoted to a lower pay scale rather than being dismissed, as a lenient measure to retain them in employment. In situations where a firm is deemed a "sick industry" and faces closure, employees may volunteer to lower their salaries to protect their jobs and the industry's survival, showing their commitment to their livelihoods and the revival of the struggling business.
Many employers opt to merge a portion of the DA with the basic pay, allowing for DA to be recalculated after the merger, facilitating periodic wage revisions through agreements with employees' unions. However, raising the basic pay carries implications, as most DA and allowances are based on a certain percentage of the basic pay, leading to an overall increase in the employers' wage bill. On the other hand, reducing the basic pay is an infrequent occurrence, reserved for exceptional circumstances.
Kind regards,
Kumar S.
From India, Bangalore
There are no rules or guidelines legally prescribing how much the basic pay should be, as well as the amount of DA and other allowances. The minimum wages under the act represent the total emoluments, i.e., the gross salary or wages. This means that the Minimum Wages Act does not specify the breakdown of basic pay, DA, and other allowances. There is no restriction stating that the basic pay should exceed the DA or vice versa. In fact, many organizations, banks, etc., have their DA and allowances exceeding the basic pay.
There have been instances where DA is reduced in cases of "reverse inflation," but it is rare for basic pay to be decreased, typically reserved for disciplinary action. In certain cases, individuals found guilty may be demoted to a lower pay scale rather than being dismissed, as a lenient measure to retain them in employment. In situations where a firm is deemed a "sick industry" and faces closure, employees may volunteer to lower their salaries to protect their jobs and the industry's survival, showing their commitment to their livelihoods and the revival of the struggling business.
Many employers opt to merge a portion of the DA with the basic pay, allowing for DA to be recalculated after the merger, facilitating periodic wage revisions through agreements with employees' unions. However, raising the basic pay carries implications, as most DA and allowances are based on a certain percentage of the basic pay, leading to an overall increase in the employers' wage bill. On the other hand, reducing the basic pay is an infrequent occurrence, reserved for exceptional circumstances.
Kind regards,
Kumar S.
From India, Bangalore
Hi If they are covered under Minimum wages no other option we have to follow Act else Management can take a call on it. Cheers Karthik Nayudu
From India, Vijayawada
From India, Vijayawada
There are states which had fixed MW as basic + VDA + service weightage. If the employee is getting only the MW, then basic cannot be reduced even if the employee agrees because it is contracting out. It is also not advisable where DA, HRA, etc., are paid as a % of basic. If the reduction in basic results in a reduction of benefits/contribution under EPF, ESI, Gratuity, ID, Bonus Acts, or subsistence allowance, then also it is not right.
Varghese Mathew
9961266966
From India, Thiruvananthapuram
Varghese Mathew
9961266966
From India, Thiruvananthapuram
Dear Saswata Banerjee,
Restructuring the pay/wage scales is different from reducing the salary/wage. If the restructuring is through a valid and legal settlement (I am discussing only regarding workmen covered by the provisions of the Industrial Disputes Act), then there is no dispute between the employer and the workmen, and therefore section 9A will not be attracted.
With regards,
From India, Madras
Restructuring the pay/wage scales is different from reducing the salary/wage. If the restructuring is through a valid and legal settlement (I am discussing only regarding workmen covered by the provisions of the Industrial Disputes Act), then there is no dispute between the employer and the workmen, and therefore section 9A will not be attracted.
With regards,
From India, Madras
Dear Soma,
If I'm not wrong, your company wants to restructure the compensation part, mostly known as "Restructuring of Compensation." I want to clarify one thing: your company can reduce the basic salary without affecting the gross by dividing it into various allowances. However, always keep in mind that your basic salary should not be less than the minimum wages and should not violate the minimum wages act.
The PF officer will never check why you are paying more allowances; they will only verify the PF payments to ensure you are not violating minimum wages (this is the reality).
Another benefit is that your company will pay a lesser amount of tax because the company only pays income tax on BASIC+DA. Therefore, it's advantageous for your company to reduce the basic salary.
Regards,
Anjana
From India, Bhubaneswar
If I'm not wrong, your company wants to restructure the compensation part, mostly known as "Restructuring of Compensation." I want to clarify one thing: your company can reduce the basic salary without affecting the gross by dividing it into various allowances. However, always keep in mind that your basic salary should not be less than the minimum wages and should not violate the minimum wages act.
The PF officer will never check why you are paying more allowances; they will only verify the PF payments to ensure you are not violating minimum wages (this is the reality).
Another benefit is that your company will pay a lesser amount of tax because the company only pays income tax on BASIC+DA. Therefore, it's advantageous for your company to reduce the basic salary.
Regards,
Anjana
From India, Bhubaneswar
Dear Soma,
I agree with Anjana's point. I also have a court judgment that I am sharing, which will support your position. Let the experts in the forum share their views, and then you can decide whether to roll back to your old pay structure or let us face the PF inspectors.
Regards
From India, Coimbatore
I agree with Anjana's point. I also have a court judgment that I am sharing, which will support your position. Let the experts in the forum share their views, and then you can decide whether to roll back to your old pay structure or let us face the PF inspectors.
Regards
From India, Coimbatore
Dear PT Ramesh ji, The question of querist is - Can basic be decresed ? Is it legal ? Your reply says that the PF contribution can be reduced. This is not the answer to the queriest question.
From India, Mumbai
From India, Mumbai
Mr. Remesan,
The case you mentioned is not about reducing the basic; it was regarding whether management can reduce the PF contribution from the higher rate to the prescribed statutory limit of Rs 6,500. The bank was contributing for the wages in excess of Rs 6,500. They decided to limit the contribution to Rs 6,500 only. The Supreme Court upheld it.
VARGHESE MATHEW
9961266966
From India, Thiruvananthapuram
The case you mentioned is not about reducing the basic; it was regarding whether management can reduce the PF contribution from the higher rate to the prescribed statutory limit of Rs 6,500. The bank was contributing for the wages in excess of Rs 6,500. They decided to limit the contribution to Rs 6,500 only. The Supreme Court upheld it.
VARGHESE MATHEW
9961266966
From India, Thiruvananthapuram
Dear all,
I feel that any component of the wages could be revised upwards or downwards based on the understanding between management and workers/unions, but the same should not be less than the minimum wages under the Act. If we consider the quantum of minimum wages and the wages prescribed under various labour welfare legislations for contributions, it will be seen that mere compliance will not suffice.
Secondly, going by the present trend of cost-to-company (CTC), such adjustments are commonplace. Ultimately, it is a question of whether the workers raise any dispute over it. If not, proceed without any worry.
Thirdly, as regards fixed-term or contractual employment, every term is independent of each other, and management is at liberty to fix compensation based on demand and supply without triggering provision 9A of the Industrial Disputes (ID) Act. There are no restrictions thereon.
Seniors, please guide.
Regards.
From India, Mumbai
I feel that any component of the wages could be revised upwards or downwards based on the understanding between management and workers/unions, but the same should not be less than the minimum wages under the Act. If we consider the quantum of minimum wages and the wages prescribed under various labour welfare legislations for contributions, it will be seen that mere compliance will not suffice.
Secondly, going by the present trend of cost-to-company (CTC), such adjustments are commonplace. Ultimately, it is a question of whether the workers raise any dispute over it. If not, proceed without any worry.
Thirdly, as regards fixed-term or contractual employment, every term is independent of each other, and management is at liberty to fix compensation based on demand and supply without triggering provision 9A of the Industrial Disputes (ID) Act. There are no restrictions thereon.
Seniors, please guide.
Regards.
From India, Mumbai
I agree.
Moreover, in the document attached, it clearly states - "Section 12 prohibits the employer from reducing the wages of the employee to avoid liability to pay contributions to the EPF Scheme. It specifies that the employer should not reduce, whether directly or indirectly, the benefits such as old age pension, gratuity, provident fund, life insurance, etc., to which the employee is entitled under the terms of employment, express or implied. The counsel for the petitioners pointed out the prohibition under Section 12 of the EPF Act, stating that the employer must not reduce the benefits enjoyed by the employee directly or indirectly. By reducing the employer's share of contribution, the employees' benefits would be diminished. Section 12 imposes a prohibition on reducing wages with the intent to avoid payment of contributions to the Scheme. It further clarifies that the employer cannot reduce these benefits directly or indirectly if the terms of employment entitle the employee to such benefits.
Warm regards.
From India, Delhi
Moreover, in the document attached, it clearly states - "Section 12 prohibits the employer from reducing the wages of the employee to avoid liability to pay contributions to the EPF Scheme. It specifies that the employer should not reduce, whether directly or indirectly, the benefits such as old age pension, gratuity, provident fund, life insurance, etc., to which the employee is entitled under the terms of employment, express or implied. The counsel for the petitioners pointed out the prohibition under Section 12 of the EPF Act, stating that the employer must not reduce the benefits enjoyed by the employee directly or indirectly. By reducing the employer's share of contribution, the employees' benefits would be diminished. Section 12 imposes a prohibition on reducing wages with the intent to avoid payment of contributions to the Scheme. It further clarifies that the employer cannot reduce these benefits directly or indirectly if the terms of employment entitle the employee to such benefits.
Warm regards.
From India, Delhi
Hi All,
One of my friends had a previous experience similar to this. They were paying Rs.200 per day to sewing operators, and PF was contributing Rs.200 as well. Later, they restructured their wages, and PF contributions started to be remitted excluding HRA. That is, PF was deducted and remitted on Rs.174 instead of Rs.200. In this case, they were able to convince the PF officers. I am sharing this practical case for information and am interested to know its legal validity further.
From India, Coimbatore
One of my friends had a previous experience similar to this. They were paying Rs.200 per day to sewing operators, and PF was contributing Rs.200 as well. Later, they restructured their wages, and PF contributions started to be remitted excluding HRA. That is, PF was deducted and remitted on Rs.174 instead of Rs.200. In this case, they were able to convince the PF officers. I am sharing this practical case for information and am interested to know its legal validity further.
From India, Coimbatore
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Revision in Basic wage wef Mar 2014 Gazette.pdf