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Thread Started by #somadas

Our organisation is undergoing a revision in the salary structure. Under the new system there is a probability that for 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.
But, I want to know whether this is okay as per 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 throw some light on it.
Thanking you.
1st March 2013 From India, Kolkata
Hi Soma,
As per PF Law, u r monthly contribution should not be reduced in any month (except absentisum). Doing so will have the PF inspection point, basis which u will be counted as defaulter and asked to pay the difference amount with penalty.
Further, will have the problem, while computing Bonus, leave encashment, gratuity and their return submisson.
Companies put the clauses in the appointment favouring their system, however the compliance is not a part of policy, it's a law to follow all individual/firm/propriertor.
Nilesh cb
1st March 2013 From India, Mumbai
Mr. Nilesh,
Thank you very much for the response.
Will the same be applicable if the employee is on as fixed term contract and we issue him a fresh contract with the revised structure where the basic comes down?
1st March 2013 From India, Kolkata
Dear Somadas;
Sec 72 of the ESI Act and Sec 12 of the EPF Act,restrict the employers from reducing wages which results in reduction of contribution.Best way is to treat the amount of defference in basic as personal pay at par with basic for the purpose of EPF ,ESI,Bonus ,Gratuity etc until the next revision or compensation policy.
2nd March 2013 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, this is nothing wrong, excepting - caution - where certain benefits are calculated based certain % on the "Basic Pay" and some seniority issues may crop up when based on Basic pay. If these are taken care of it's ok only when you are not losing anything what is already in vogue. Probably we can judge impacts better if you can provide us with the Pre-revised and revised structure for juxtaposed study of the proposal.
2nd March 2013 From India, Bangalore
Dear Soma
In case of, and only in 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.

2nd March 2013 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
3rd March 2013 From India, Chennai
Dear Soma ji,
I endorse the response by Nilesh ji, Varghese ji and Jayaraman ji. I do not agree with the view by Kumar ji and Raj Kumar ji with due respect to them.
You can not reduce the basic component of any employee even he agrees for it willingly. You can not reduce the basic component under any circumstances except in decrease of DA due to fall of CPI which is very rare.
3rd March 2013 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.
3rd March 2013 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 case of FTC consultant whose contract was Terminated midway. However, later on a new contract was drawn up with much lesser emoluments.

Therefore, I request you to please reconsider your statement :

"You can not reduce the basic component under any circumstances except in decrease of DA due to fall of CPI which is very rare"

Moreover; DA is entirely a different component and not a part of Basic Pay. That is the reason one finds both of these mentioned separately, but together; like Basic play plus DA.

However, I agree with the gist of you and other's statement on reduction of basic pay. The exceptions are only there to prove the General Rule.

Warm regards.

3rd March 2013 From India, Delhi
Dear Raj Kumar ji,
With due respect to you sir, I submit my views as under:
Even in FTC, there should not be reduction in emolument. Negotiations should be for higher emolument.
I too heard about the reduction in basic pay by way of PUNISHMENT by Competent Authority in PSU and Government services. But in private sector, there is no such reduction in basic pay by way of PUNISHMENT.
In case of FTC consultant, you can negotiate for lesser emolument. However, in case of FTC employee, you can not.
I do not agree with you. According to my view, DA is a part of Salary. Salary means basic plus DA. We need not to mention the DA separately. Therefore, we call it 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 meant for neutralizing the erosion of basic wages by the cost of inflation.
3rd March 2013 From India, Mumbai
Basic can be reduced by awarding punishment of with holding of increment in a disciplinary proceeding, not otherwise.It is possible not only in public sector but also in private sector If the standing orders provides it.
3rd March 2013 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.
3rd March 2013 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 clear understanding. In any case there cannot be any reduction in present Gross (Salary) However restructuring the Basic & DA and other allowances without overall reduction in gross is possible.
4th March 2013 From India, Bangalore
[QUOTE=varghesemathew;2033374]....................but also in private sector If the standing orders provides it.


Dear Varghese ji,

Greetings of the day!!!!

Rather than differing you, I would like to share my knowledge and understanding in this regards as under:

Prior to enactment of IE(SO) Act, the employer was free to fix the service conditions of his employees according to his own will. As a result of this there existed different sets of SOs / service conditions in different establishment. This Act i.e. IE(SO) Act has taken away this freedom of the employer.

According to me the certified SO shall be, so far as is practicable, in conformity with model SO. It shall make provision for every applicable matter specified in the schedule appended to the Act.

The matters provided in the schedule do not include the reduction of wages / basis wages etc. However, Sr.11 in the schedule includes any other matter which may be prescribed.

I have not come across any such SO in private sector which permits reduction of wages / basis wages. It is not in conformity with model SO. But GOD knows, there may be.... Any thing is possible.....

If you or any member / viewer came across any such inclusion, I request to share it to all.
4th March 2013 From India, Mumbai
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
4th March 2013 From India, Thiruvananthapuram
Dear Varghese ji,
I have not differed you. I again repeat, in PSU / Govt. Sector I have seen the reduction in wages / basic wages but not in private sector. If you know any such case in private sector, I have made request to you to share it. Because to my understanding and knowledge, in private sector there is no permit to reduce the wages / basic wages. Certified SOs can not have such provision, unless some one takes the advantage of Sr.11 in the schedule of SO Act which state:- "any other matter which may be prescribed".
According to the SO Act, punishment may be i. warning / censuring; or ii. fine in accordance with provisions of POW Act; or iii. suspension for not more than 4 days; or iv. dismissal.
Please take it as sharing of knowledge. If I am wrong, one can correct me.
4th March 2013 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 grade with other components of the gross salary being adjusted accordingly. Now the management wishes to revise the structure, due revision in the coming FY, and fix the range of the gross for each grade instead of the basic. The basic and other components to 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 but there will be 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.

E.g. Presently Mr. X gets 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 as 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 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 want to implement the revised structure in the annual appraisal.

With regards,

4th March 2013 From India, Kolkata
Dear Soma,

This is exactly what I was predicting. However, normally the structure is made first the Basic and then other allowances as a %age on basic, say DA 30% of baisc, HRA 20% of basic, City allw.10% basic, Conveyance 10% basic and so on. Whereas your firm trying the other way round, putting the horse behind the cart. Generally this pattern is followed in Govt. and Govt. controlled PSUs, autonomous Estt. educational institutions etc. where govt guidelines are adopted in the matter of pay fixation and allowances. Even in private sector, modern estts. the concept of CTC is ruling these days. Nevertheless, your attempted restructure should not cause any problem for the purpose of EPF, ESI, Pension, Gratuity etc. as these are not calculated not on the Basic pay but on the salary, the gross where basic pay + other defined allowances are taken together in whatever name they are called. So there cannot be any ambiguity excepting that there could be some embarrassment among those whose basic pay is revised down wards as it may appear they have been degraded by the hidden effect. By the by what pattern of DA you are going to follow, is it on govt.declared CPI/WPI based indices or some thing else. I think your firm could have applied their mind on the breaking down of 'other allowances' as well, as it would be necessary for statutory compliance purposes.

4th March 2013 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 % break-up without violating the statutory requirements. We do have the govt. CPIs. But would like to understand how to calculate the DA based on the same.
Please help me.
5th March 2013 From India, Kolkata
Hi Soma

As far as I can see, there is no specific provision in law that you can not reduce basic or even the total salary that you pay to an employee. Make sure that the basic + DA + Special Allowance is more than minimum wages. Only other rule that applies is that amount of PF can not be reduced. However, even that rule applies only for statutory limit of PF amounting to Rs. 780 per month. If your basic is above 6500 per month, then reduction will not affect PF

That given, 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.

Some times people try to make trouble simply by taking advantage of a gap they perceive. So you may have investigation by the authorities who will harass you on this matter. One way out is to get approval of the concerned labour officer for your settlement.
7th March 2013 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.
7th March 2013 From India, Kolkata
Generally the notification from the government will have the working of how much of DA is to be given.
In case of minimum wages, the increase is specified. you can use the same ratio of increase in DA of minimum wages with reference to the wages are you paying.
The DA increases are announced every 2-3 months by the government, separately for urban and rural and industrial workers. They also announce DA increase of central government employees. You can get the information from NIC and from published reports in newspapers
7th March 2013 From India, Mumbai
Dear Soma,
I have attached a few notes on the history of DA, especially followed in govt.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 thro' for relevant information and guidance. If you have to follow the govt.pattern of pay, scales of pay, FDA, VDA and other allowances you should buy a copy of "Swamy's Hand Book 2013" from the book sellers where in you'll get all information about pay, DA, allowances, tax matters and so many other aspects of law. If you would have any specific queries you may raise them here.
All the best.
7th March 2013 From India, Bangalore

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File Type: doc Dearness Allowance in India-The history.doc (51.5 KB, 207 views)
File Type: doc CPI.Jan.13.doc (4.81 MB, 102 views)
File Type: doc The concept of WPI & CPI-DA Fixation.doc (73.0 KB, 165 views)

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,
7th March 2013 From India, Kolkata
I have checked the Minimum Wages and have found that the basic + da for most of the executive position is more than 7000. ie. (Basic 5000/5500+ DA1576/1600). These rates were found in Maharashtra Minimum Wages Jan 2013-June 2013. Can an Organization have basic pay less than the amount mentioned above for such positions. Am still confused. Can any Organization have basic pay as 1800/2000/3000 etc. Will that not be going against the statutory compliances.
8th March 2013 From India, Mumbai
This matter is being debated in the court at the moment
However, according to me, where the notification clearly lays down the how much is the minimum wages in terms of basic and da, you have not justification really in having it lower
8th March 2013 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 amount to a violation of Section 9A of the Industrial Disputes Act.
With regards
8th March 2013 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
8th March 2013 From India, Mumbai
Dear friend,

There is no rules or guidelines legally how much should be the basic pay and how much DA & other allowances. What is minimum wages under the act is the total emoluments i.e.Gross salary or wages which means Minimum Wages Act doesn't prescribe basic, DA & other allow. There is no restriction that Basic pay should be more than the DA or vice versa. In fact many organisations, banks etc have their DA & allw. more than the basic pay. There are instances where DA is reduced when the "reverse inflation" is reported but there is no instance that basic pay is reduced excepting as a punishment. In some cases as a punishment those found guilty is refixed/relegated to a lower pay scale (taking a lenient view instead of dismissing) in order to secure/retain them in the employment. In some cases firms when reported as "sick industry" & facing closure etc. employees come forward to lower their salary in order to save their employment & their industry as a mark of livelihood & to revive their bread winner industry to be rehabilitated. That's why Many employers merge part of the DA with Basic pay so that DA is refixed after merging with basic and accordingly periodical wage revision agreements are made with employees' unions. However increasing the Basic pay means,it' has got it's own repercussions as most DA and allowances are indicated as certain %age on Basic pay and thus increase the overall wage bill of employers. However lowering the Basic pay at best could be one of the rarest of rare cases only.

8th March 2013 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
8th March 2013 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 employee agree 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 reduction of benefits/contribution under EPF,ESI,Gratuty,ID ,Bonus Acts or subsistence allowance etc,then also it is not right.
Varghese Mathew
8th March 2013 From India, Thiruvananthapuram
Dear SaswataBanerjee
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
8th March 2013 From India, Madras
Dear Soma
IF i'm not wrong your company want's restructure the compensation part it is Mostly known as "Restructuring of Compensation". I want to clear you one thing that your company can reduce the Basic Salary without affecting the Gross by dividing it into various allowances but, keep it always in your mind that your basic salary should not be less than Minimum Wages and it should not violate the minimum wages act.
2. The PF officer will never see that why your are paying more allowances he will only check the PF that whether your paying PF or not and that is to not violating minimum wages(THIS IS THE REALITY).
3. You will get one another profit that your company will going to pay lesser amount of TAX because company only pay Income Tax on BASIC+DA so it's good for your company to reduce the basic.
17th March 2013 From India, Bhubaneswar
Dear Soma,
I agree with the point of Anjana, also I have a court judgment, I am sharing, will support your position.
Also let the experts in the forum share their views, then you can decide whether to roll back to your old pay structure or let us face the PF inspectors..
19th March 2013 From India, Coimbatore

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File Type: doc PF Contribution can reduced.doc (55.0 KB, 97 views)

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.
19th March 2013 From India, Mumbai
Mr Remesan
The case you mentioned is not on reducing the basic.It was on the question of whether management can reduce the PF contribution from the higher rate to the prescribed statutory limit of Rs 6500/-.The bank was contributing for the wages in excess of Rs6500/-.They decided to limit the contribution on 6500/only The SC upheld it.
19th March 2013 From India, Thiruvananthapuram
Dear all,
I feel that any component of the wages could be revised upwards or downwards based on the understanding between mgt. & workers/unions, but the same should not be less than the min. Wages under the Act. If we consider the quantum of min wages and the wages prescribed under various labour welfare legislations for contributions, it will be seen that the bare compliance will not be affected.
Secondly, going by the present trend of CTC, such adjustments are the order of the day. 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 is concerned, every term is independent of each other and the Mgt. is at liberty to fix compensation based on demand & supply without attracting prov. 9A of ID Act. There is no restrictions thereon.
Seniors may pls guide.
19th March 2013 From India, Mumbai
I agree.

Moreover, in the very document attached; it clearly says - "Section 12 prohibit the employer from reducing the wages of the employee for avoiding his liability to pay contributions to the E.P.F. Scheme. It says that the employer should not reduce whether directly or indirectly, the benefits of the old age pension, gratuity, provident fund, life insurance etc. to which the employee was entitled under the terms of his employment express or implied. The learned counsel for the petitioners submitted that there was a prohibition under Section 12 of the EPF Act that the employer should not reduce the benefits enjoyed by the employee either directly or indirectly and by reducing the employer''s share of contribution, the benefits which the employees were enjoying would be reduced. Section 12 imposes a prohibition from reducing the wages with an intent to, by reason only of his liability for the payment of contribution to the Scheme. It further says that the employer cannot reduce it directly or indirectly if by the terms of employment, the employee shall be entitled to such benefits......"

Warm regards.

20th March 2013 From India, Delhi
Hi All,
One of my friend had a previous experience similar to this. They were paying Rs.200/- day to sewing operators and PF were contributing for Rs.200/-. Later they have restructured their wages and PF contribution started remitted excluding HRA. That is PF deducted and remitted on Rs.174/-instead of Rs.200/-. In this case they were able to convince PF officers.. Just I am sharing a practical case for information, and interested to know its legal validity further.
20th March 2013 From India, Coimbatore
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