Can Management Reduce Basic Salary? - CiteHR
Saswatabanerjee
Partner - Risk Management
Exiafsergeant
Personnel & Industrial Relations
+1 Other

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Dear Professionals,
Greetings!!!
Due to current market scenario, my company management is thinking to reduce salary.
Its management's thought that since PF and Gratuity is attacked by basic salary, we should reduce basic.
Pl let me know whether it is legal to reduce basic salary. If yes, what steps / compliance we need to complete.
Pl note that we are paying more than minimum wages and PF is calculated on actual basic. Most of the employees come under staff / officer category.
Thanking you in advance.
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Dear Amit,
Basic Pay cannot be reduced across the board due to PF & Gratuity Contributions. In one odd case, Basic Can be reduced owing to result of disciplinary action initiated.
Regional PF Commissioner can help you by referring relevant paras of PF & MP Act. Please be very cautious and keep the communication verbal as far as possible.
Thanks,
Manish
I would disagree

The provision on PF act that you are referring to is that when PF is first being introduced in the company, the salary can not be brought down to recover the employers contribution to PF from the salary of the employee. Where the employees are already covered in PF, then this rule does not apply. In adverse business conditions, the business is free to bring down the wages subject to provisions of laws. Main things to be noted :

1. The reduced basic should not be below that specified in Minimum Wages Act

2. The provision of industrial dispute act must be followed with reference to notification of change of service conditions (in this case salary)

3. If standing orders apply, the process specified in it must be followed.

Reducing Basic only, is a bad idea.

You are sure to get a notice from the department and your records and organisation will go under scanner. If they can prove that this was done only to bring down the PF contribution and that the pretence of wage reduction is only a cover, then you will be in serious trouble.

Further, minimum wages in most states are already close to 6500, which is the ceiling under PF act. So what are you going to actually save ??

You are free to reduce salaries (as long as you are not worried about retention of employees). But it should not be with a mala-fide intention.


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