Hi, I have an issue in my company. I request you all to please help me.
Due to this pandemic period, our management has decided to have pay cuts in employees' salary and we started deducting 15 - 20% of deduction in the gross salary. We don't have PF & ESI. we only have PT deduction.
Now one of my employees came back with an issue saying we can't change the basic salary. I explained to him that when the gross itself is changing, automatically basic will change. But he is not ready to listen. So please let me know what is the actual process to process a pay cut in salaries without having any legal issues.
Thanks.
Jyothi.
From India, Hyderabad
Due to this pandemic period, our management has decided to have pay cuts in employees' salary and we started deducting 15 - 20% of deduction in the gross salary. We don't have PF & ESI. we only have PT deduction.
Now one of my employees came back with an issue saying we can't change the basic salary. I explained to him that when the gross itself is changing, automatically basic will change. But he is not ready to listen. So please let me know what is the actual process to process a pay cut in salaries without having any legal issues.
Thanks.
Jyothi.
From India, Hyderabad
Dear Jyothi,
Your colleague is right. Basic salary cannot be reduced. Whatever the salary is above the basic component that can be reduced but not the basic.
Possibly you had assumed that if the gross salary is reduced then there should be reduction in the basic salary as well. However, there is no such legal provision. Reduction in basic salary impacts gratuity and leave encashment also. Therefore, one has to be cautious while reducing the salary.
Lastly, the while reducing the salary make sure that the reduced salary does not go below even the minimum wages. That would be violation of Minimum Wages Act.
Thanks,
Dinesh Divekar
From India, Bangalore
7879Your colleague is right. Basic salary cannot be reduced. Whatever the salary is above the basic component that can be reduced but not the basic.
Possibly you had assumed that if the gross salary is reduced then there should be reduction in the basic salary as well. However, there is no such legal provision. Reduction in basic salary impacts gratuity and leave encashment also. Therefore, one has to be cautious while reducing the salary.
Lastly, the while reducing the salary make sure that the reduced salary does not go below even the minimum wages. That would be violation of Minimum Wages Act.
Thanks,
Dinesh Divekar
From India, Bangalore
Dear Dinesh Divekar,
I do agree with you. Basic salary can not be reduced.
However, one can effect change in any matter related to service conditions listed in schedule IV of the ID Act by giving notice as prescribed in the Act.
Schedule IV contains matter relating to wages also. Wages means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment or of work done in such employment, and includes certain allowances and excludes bonus, gratuity and employer share of EPF /EPS.
What does it mean, in my views you can make changes even in Basic also. But you need to protect the EPF /EPS. You need to follow the procedure under 9A.
I also would like to draw you kind attention to the interim order of H'ble SC in Ficus Pax and others. By this interim order H'ble SC gave directions & guidelines for settlement of wages during lock-down, that has to be followed.
All the above is applicable to those who falls under the definition of worker under ID Act.
If a person do not fall under the definition of worker under ID Act, you can still effect the change by agreement with such kind of employees, in my view.
From India, Mumbai
I do agree with you. Basic salary can not be reduced.
However, one can effect change in any matter related to service conditions listed in schedule IV of the ID Act by giving notice as prescribed in the Act.
Schedule IV contains matter relating to wages also. Wages means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment or of work done in such employment, and includes certain allowances and excludes bonus, gratuity and employer share of EPF /EPS.
What does it mean, in my views you can make changes even in Basic also. But you need to protect the EPF /EPS. You need to follow the procedure under 9A.
I also would like to draw you kind attention to the interim order of H'ble SC in Ficus Pax and others. By this interim order H'ble SC gave directions & guidelines for settlement of wages during lock-down, that has to be followed.
All the above is applicable to those who falls under the definition of worker under ID Act.
If a person do not fall under the definition of worker under ID Act, you can still effect the change by agreement with such kind of employees, in my view.
From India, Mumbai
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Notice of Employee Change.doc
Employee Salary file - India 2016 AB.xls