tsivasankaran
368

Dear Srira

Employment terms and conditions are governed by appointment letter and Industrial disputes act.

PF Act and ESI are social security legislations and have no scope on terms.

The Sections you are referring to is to protect the employees from employer recovering their contribution from the employees.

Consider variable Dearness Allowance. There had been months in which Cost of Living Index will come down and the salary....Basic plus DA of an employee will come down from the previous month. This is not theoretical and we have seen these variations.
Then can the PF authorities demand that the employer to deduct based on the higher DA and contribute on hbigher DA? They can not.

Purpose and intention of the sections specified by you are different

The question raised was...

Can we reduce the Basic salaries of employees?

Legally it is possible

They are guided by
1. Terms of appointment
2. Industrial Disputes Act

In case of employees not governed by ID Act, change the terms and get it signed in token of acceptance Here the new terms of service will become applicable which is a valid contract in law

Those who are goverend by ID Act a notice under Section 9A is mandatory

Siva

From India, Chennai
dinesh.dhiman
In your case PF deduction will be made on 5000 and ESI will be deducted on gross i.e on basic and d.a. thanx & regards Dinesh 09816545630
From India, Haryana
Dhanuindian
Hi Sdix,
This issue would lead statutory implecations. One way we can do the same as those who are lower salaried employees (below 6500 basic+DA), not required to reduce their basic and the higher salaried we can reduce their basic, but make sure as told above their basic should not fall in to the PF class. accordingly we can make changes.

From India, Bangalore
Mukul Mathur
3

Hi Sdix,

Pls note that the basic salary of an employee cannot be reduced from the existing %age or amount during the continuity of the employment. However, if an employee happens to resign from one entity of the group and join another entity as a new joinee, it is very much possible and doesnot have any legal implications.

PF is a benefit offered to an employee MANDATORILY by an employer to ensure MINIMUM benefit to the employee. The 12% contribution of basic + DA further gets divided into EPF & EPS, which is a long term benefit for employee. Hence, any negative change in the basic would lead to decrease in associated benefits of the employee, which is ILLEGAL as per law.

Any organization may change the salary structure without compromising on the existing statutory benefits of an employee. Law always talks about MINIMUM Benefits, rest is upto the discretion of the employer.

Inclusion of DA for calculation of PF - DA i.e dearness allowance and Food allowance, if any, must be included for the purpose of calculation of PF as per the act. Pls note DA i.e DAILY ALLOWANCE is not same as DEARNESS ALLOWANCE.

Regards

From India, Mumbai
Jayachandran
23

Hi,
The salary structure is the one which is more specific to each org. the management can have any salary structure. But the proposed structure should be at the interest of employees. If basic is high, the PF contribution will also accordingly increase. this is beneficial for any person in two way.
1. the taxable income will get reduced to the extend of PF contribution.
2. The investment base of a person go well without any cashflow prob.
over a period of time, the employee would have saved a good amount.
here, you can have high basic along with reimbursement components so as to reduce the taxable salary. reimbursements are liable for FBT @ 6.732% as against the normal tax slabs.
should you require more info, please do not hesitate to post.
regards
Jay

From India, Madras
nilendrachand
18

Dear Siva and others,

As said earlier Basic cannot be reduced as it has impact on few other statutes.

Shiva, when you are talking about variable DA, then the essence of DA is to protect against economic instability. hence, it dosent contravene the provisions of law. In any case with VDA you also have FDA. You cannot only have VDA and i hope you will also comfirm to it.

Normally, Cos. whose income is much dependent upon $ rate or things like that, then they have a component which is nornally called Variable Pay. You can have such things as part of compensation with a clause that this payout will depend on Cos. performance and can vary and take signature from employees.

If you take signature from employees on any document where you have written that you are reducing basic salary for any reason, then also it will not have any impact on court and decision will be not in your favour.

One should keep reading case laws so that decision making in these situations become easier.

Again, if you introduce variable pay components then in that case you can reduce other allowance and that will have no negetive impact on law.

In case of reduction of basic, when the PF commissioner will come to audit your books then you will have a real diffcult time as these people are really difficult to handle in case of default.

Regards,
Nilendra


nilendrachand
18

Dear, Read case studies. you will gain more understanings on these issues and also when you deal with these things Regards, Nilendra

subhendu5
Dear All Is any where mentioned that basic salary should be 50% of Gross Salary or is it a standard policy that we can keep it as 50% of Gross salary
From India, Gurgaon
tsivasankaran
368

Dear Nilendarchand

I can only tell from my experience and understanding of law that it is not illegal to reduce basic.

I would request you to look at the reasoning.

Where does the law say that the basic shall not be reduced??

Alternatively the Industrial Disputes Act provides for Sec 9A where an employer can give Notice of Change for altering terms which is not in favour of workmen.

As for as Managerial and supervisory staff are concerned, they are goverened by individual contract and we can alter the terms and if both parties agree, then it becomes a contract. In case of a Management staff, if he is not willing to agree to the change of condition, then the Management can always use termination clause.

Let me remind, that we are purely talking about legal position., I am not discussing whether this is the right method or whether it is ethical.

I have atleast four or five times in my career reduced Basic salaries of Management Staff

With unionised category, I have not done as it involves negotiation. But I kn ow of Companies which gave Notice of Change under ID Act and changed the basics to lower level

This is the legal position.

Since it is a very important subject, I would request any moderator to intervene at this stage, and if need be get an opinion.

I can always put my signature and give my opinion!!! If you need a better known person to give opinion, I will get it free of cost.!

Again I repeat... I am talking about legal position.

It is not illegal

Siva

T.Sivasankaran MA(TISS) LLB

*

I am not adding these qualification to say that what I am saying is 100% correct. Many a times, people will look at the views in a different perspective This is very important topic and I do not want any new comers to the field to go with an information which is not legally correct.

If there is any caselaw contrary to my views, kindly quote and I will examine

From India, Chennai
Rajat Joshi
101

Dear all,

Yes, The company can reduce the basic especially for the staff viz on unionised members as long it is a restructuring exercise as mentioned by my colleagues here.

Here one has to take care of the following :

1. Preferably it should be done at the annual increments where reducing basic 50 % of CTC to 40 % or 45% which increasing the take home salary by way of reduction of contribution to PF as well as there should be nominal hike ( atleast 10-15%) over earlier CTC before being revised. This should be explained in the increment letter showing the figures on erstwhile CTC vis -a-vis revised CTCs.

2. There would be readily acceptance if the increased salary is put under the tax saving heads like LTA or Food coupons rather than under taxable allowance head!.

3. As rightly pointed - one needs to take the copy of acceptance on the revised letter.

4. In case of the unionised workers - it can done at the time of wage settlement & discussions. Here one needs to have a buy-in and possess the assertive and negotiation skills to push it through.

In all & all in above initaitives HR needs to be pro-active and ensure the rumours or grapevine network is handled well.

Best Regards,

Rajat Joshi

From India, Pune
Community Support and Knowledge-base on business, career and organisational prospects and issues - Register and Log In to CiteHR and post your query, download formats and be part of a fostered community of professionals.






Contact Us Privacy Policy Disclaimer Terms Of Service

All rights reserved @ 2024 CiteHR ®

All Copyright And Trademarks in Posts Held By Respective Owners.