Labour Law & Hr Consultant
Partner - Risk Management
Ashutosh Thakre
Hr Professional

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Dear Experts,
Would like to seek your advise on this situation. If an employee was entitled to a driver allowance but subsequently the company change its policy to only have driver allowance for a higher grade employee. The driver allowance was then absorbed into the basic salary. Few years down the road, the employee is now upgraded to the grade entitled to a driver allowance. Can the employer now reallocate from the basic salary to the driver allowance i.e. reduce the basic salary and but the same amount to the driver allowance?

From Malaysia, Petaling Jaya
Dear Jarode,

The answer to your query depends upon so many factors like the category of the concerned employee likely to be affected by the change, the employment law applicable, the terms of the contract of employment, the principles of wage and salary administration adopted by the Management in tune with accepted universal practice in this regard and the like. Promotion ensures career advancement to employees as well as availability of known talent to the organization. So from the perspective of the employee, promotion, per se, is a kind of career advancement with the upgradation of all the ingredients associated with the higher responsibility whereas grant of a particular allowance available to a higher cadre without advancement means enhancement of monetary upgradation in the back-drop of practical impossibility caused by the rigid pyramidal structure of the organization, may be due to longer experience by the efflux of time subject to satisfactory performance. In the latter case, it is certainly not promotion but just an upgradation to the entitlement of a facility hitherto unavailable. Therefore, in such a case-situation common sense will demand only added advantage and not reduction in existing compensation package by restructuring.

From India, Salem
Ther is nothing in the law to prevent the company from restructuring its wage structure or components. However, if you are reducing basic, there is no way the department will accept it.
From India, Mumbai
Dear Jarode,
No, you will now not be able to reduce the Basic Wages. Section 12 of the Provident Fund Act, prohibits the reduction of the wages, as the contirbution towards PF or Gratuity also reduces due to the reduction in the Basic Wage.
The Extract of the section is given below:-
"12. Employer not to reduce wages, etc.
No employer in relation to an establishment to which any Scheme or the Insurance Scheme applies shall, by reason only of his
liability for the payment of any contribution to the Fund or the Insurance Fund or any charges under this Act or the Scheme or the Insurance Scheme reduce whether directly or indirectly, the wages of any employee to whom the Scheme or the Insurance Scheme applies or the total quantum of benefits in the nature of old age pension, gratuity, provident fund or life insurance to which the employee is entitled under the terms of his employment, express or implied."
Ashutosh Thakre

From India, Mumbai
Section 12 does not apply here.
Section 12 is where salary is reduced to absorb fully or partly the cost of PF contribution of the employer.
Here the employee is already under PF and employer is currently contribution and will continue to do so.
But ofcourse, I agree that the PF department will take objection. But they can't quote this section.

From India, Mumbai
Dear Ashutosh and Saswata Banerjee,
The questioner Jarod hails from Malasiya and he works there too. Therefore, I think that the answers based on the provisions of Indian Labour Laws, though they are correct, may not be relevant. Moreover, there is no indication about the status of the incumbent's employment.It seems that the incumbent stands by the efflux of time or other reasons upgraded to the next higher post with the entitlement to Driver's Allowance. So, in my view, the corresponding reduction in the basic pay of the individual will not both be fair and correct for it nullifies the monetary benefit of very upgradation.

From India, Salem
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