Due to recession in market, we donít want to dismiss them from work, but we want to decrease the salary. So they can survive as well and we sustain in market. Weather we can do it? If yes then, what will be the legal procedure? We want to introduce 1 year contract for employee. Therefore, can I get format and how can I introduce legally? Please do let me know.
Thank you
20th August 2018 From India, Jalalpur
Dear friend,
You have raised two queries. One is about decreasing the salary of the employees and second is converting their status from permanent employment to Fixed Term Employment (FTE). Let me give reply to the former whereas for latter other members will give the reply.
What is the break up of the salary components? Generally Basic salary is 30% to 50% of the gross salary. Please do not reduce the basic salary as far as possible. Since the basic is not reduced, there will not be any impact on PF remittance and reduction will not attract any attention of the PF Enforcement Officer. Other allowances that are on and above basic wages can be reduced.
Dinesh Divekar
20th August 2018 From India, Bangalore
As Per Law you have to pay the Mim. wage of that state. wage or salary consist of (Basic +DA). So your Basic + DA must be equal to Mim. wage. you can change in other components of salary structure.
22nd August 2018
You all r diverting the subject. He is looking for Legal Procedure to reduce salary/wages!
22nd August 2018 From India, Bangalore
The appointment letter is a contract and you can not reduce/decrease the salary without explicit acceptance by the employee.
In my perception, take the employees in confidence of your financial situation and give them option of either fresh T&C of engagement or termination due to the existing circumstances.
TATA's I am told asked Sr Staff to take 50% cut once and salary was raised when the situation improved. I can not vouch for it but I was told this by one of their employees.
Junior staff on min wages was not touched.
The two issued of reduction and fixed term employment should not be clubbed
Col.Suresh Rathi
22nd August 2018 From India, Delhi
Other than minimum wages also those whose salary come under purview of ESI also can not be reduced on any account please note.
24th August 2018 From India, Pune
It can be done by consent of the Employees and cannot be done unilaterally . In any case it cannot be less than minimum wages.
Sujeet Salkar
24th August 2018
Sir there is no such provision .But one condition is there
..The employer has to pay to all his engaged workers all the wage dues irrespective of his financial capacity or changed market demands or as such reasons any.
If you want to retend worker s for one year you have to pay and bare all their wage amounts
You have no legal right to stop delay or cutting in their salaries.you can exclusively maintain a separate budget for payment s of wages of your workers by taking a loan.sir
26th August 2018 From India, Nellore
If organisation has given appointment latter to employee and mentioned salary in appointment letter then what we can reduce the salary ?
27th August 2018 From India, Bhopal
Dear Sirs
I have settled one issue nearly related to above situation
A company is running on the basis of receipt of Raw material near by mines.suddenly due to honour ble court orders for a total review of supply of rawmaterials to the nearby companies
...The mIning Dept.stopped mining and supply.then
All the depended companies closed temporarily their units.
One of those companies want to retain their truck drivers who are the primary staff to reach Raw materials to company.
All the trucks put in the factory...Drivers on the road andcalled for a strike.
We have settled the matter amicably an agreement on wage payment comfortably to both parties made without affecting dues of EPFand ESI.
.. among themselves in a conducive atmosphere.
Later when supply of raw material restored normal wage structured implemented.
It can be applied to above mentioned situation .Which is internal flexible behaviour of both parties accepted by IDact also.Agreed Wagepact between employer and employees for a certain period cannot be deniable
27th August 2018 From India, Nellore
Reducing the salary affects all the major laws. It is money issue and most sensitive.
The immediate affected Acts are Payment of Wages, EPF,ESIC, Gratuity etc.
There may be more depending on state to state.
Is there recognized union in the establishment then matter becomes little bit easier. You need to do agreement with the Union. Maharashtra has MRTU/PULP Act.
If the wages are reduced unilaterally or even if one employee complains then it would land up under PULP Act schedule 4 ( 9) of the Act.
The employees can also take recourse to payment of wages Act.
After reducing the wages it should not be below minimum wages act for that particular schedule of employment. There can be no escape from this provision.
Since you want a legal procedure for it then you should always have ALC or Labour Officer as concillator for this agreement. And register it as settlement.
( My terminology may be incorrect here)
You can mention in the fresh agreement with objective criteria for increasing the wages and conditions for increment as defence in case it lands up in courts.
If company is paying PF and ESIC at nominal rate then its fine. If company is paying more contribution than statutory. Then you have added to the problem
Section 12 of the EPF ACT
"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.]"
So no employer shall by reason of his inability for payment of the contribution to the Provident Fund reduce the wages of any employee to which such Scheme apply either directly or indirectly.
The courts take very strong view if any beneficial legislation is tinkered which will also affect old age benefits.
I am just focusing on the word Ďonlyí in the sentence 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.
In this case you are not reducing the wages just to reduce liability of PF. But you are reducing to save jobs of the employees. You can argue on this point. But I am yet to come across such fine distinction in court cases.
I am sure many learned members can throw light from their vast experience.
I would still suggest that you reduce the other allowances and perks without reducing the statutory contribution. It would be the Best solution.
In case you need to reduce the PF, ESIC contribution then it would be big obstacle but if you are willing to fight then be prepared with lot of documentation like Balance sheet, Income statement and fresh agreement with Staff. Alongwith the section 12 of EPF ACT judgements.
PF officials and others will definitely go-to court over this reduction. And I doubt ALC would be willing to sign such agreement even if it's mutual.
Even if one staff member goes to Court under Industrial disputes or payment of wages Act then it would be a big job for you.
You can go through Marathwada Gramin Bank Karamchari Sanghatana and Another -vs- Management of Marathwada Gramin Bank if it helps.
In addition check for more cases with Gratuity, Payment of Wages points for reduction in Salary. I have tried to give a direction to genuine problem. And it should be taken as last option.
This is applicable to service industry salaries. They form largest part of expense whereas manufacturing industries the salary and wages form miniscule part. And even with this exercise you arenít going to save much.
6th September 2018 From India, Mumbai
Dear Friend...
You can reduce other components except Basic & DA as you provided in the letter.... But the intimation should be displayed at notice board before the couple of the months..
That will be healthy environment for Company / Employee Side for future arguments...
9th September 2018 From India, Bangalore
Pay-cut and Job-cut are the two possible options before an employer when his industry struggles to survive in a consistently persisting business recession. These are the painful but inevitable survival measures in the life of any business entity when things go beyond the control of the employer. When the employer has no reserves or other sources to augment the funds for down-sizing the no of employees by means of statutory retrenchment or under any scheme of voluntary separation, pay-cut becomes the preferable evil to job-cut. Of course, the question of legality of such a move can not be simply brushed aside by the employer. When the measure of down-sizing is not possible, reducing the salary would be handy if there is consensus between the employer and the employees subject to the condition that it does not result in contracting-out prohibited expressly u/s 25 of the Minimum Wages Act,1948. Therefore reduction in wages would not be illegal if it is in conformity with the provisions of section 9-A of the Industrial Disputes Act,1947 in respect of the employees falling within the definition of the term "workman" or if it is carried out by modification of the existing contract of employment by mutual consent in respect of other employees.
9th September 2018 From India, Salem
The notice should be placed 21 days at the prominent place as per industrial disputes act 9(A). It is not months.
My focus was on giving the answer in positive that it is possible to reduce the wages legally.
Air India has reduced the wages of staff. But they failed to give notice under section 9(A). It was industrial disputes.
Even for individual workmen the salary can be reduced as per the place of work.
Person working in city areas get higher salary than if he had been working in the rural area.
9th September 2018 From India, Mumbai
Dear Friends,
It all depend on your salary structure/ components and terms and conditions of your employment. Now flexible salary has become the new trend in corporate and directly connected to individual performance and organisational performance.
For further detail pl send complete detail of your facts.
V K Sharma
14th September 2018 From India, Delhi
Flexible pay structure can't overrule Minimum wages Act, payment of wages Act,PF,ESIC etc. Change in service conditions cannot be done unilaterally. The designation as Manager, Supervisor doesn't matter under law unless work is of such nature.
The reduction should be within law.
14th September 2018 From India, Mumbai
As pee my knowledge we can no pay less than the minimum wages of the particular state, but I would like to share two things as a solution.
1, You can take employee in confidence and show their salary structure as an part timer on paper where salary will reduce as per 4 hours and rest of the amount can adjust under OT.
2. Secondly you can shift there payroll on professional by deducting TDS , in such case no minimum wages act will be apply.
15th September 2018 From India, Mumbai
Salary once incremented can't be reduced its an legal offence.
Thanks & Regards,
Sumit Kumar Saxena
20th September 2018 From India, Ghaziabad
Dear All,
Let us give more information while answering.
If it is offence then let us give some link,judgement, reference.
It is not offence but it has to be done within legal limits as answered earlier.
The person who asked query has not responded.
So no point in further discussion.
20th September 2018 From India, Mumbai
As per rule mentioned in your offer letter, then salary is decreases due to recession in market otherwise not a legal procedure.
24th November 2018 From India, Jammu
I am Advocate High Court from Karachi, Pakistan. I am dealing in Commercial and Labour Laws in Pakistan.
As per my view legal view in this case "The principle of locus poenitentiae" applies that means in short once right has given can not be taken back.
You can not reduce Salary. Salary creates accrued and vested right.
You can take resign and pay all dues then re-hired with negotiable salary then it will be possible as per my legal view.
Asif Amin
Advocate High Court
Karachi, Pakistan

9th December 2018 From Pakistan, Karachi
Dear sir
iIn my opinion you should not reduce the salary of the employees. Instead of reducing the salary of the employees you can put it it on hold a some time at some kind of percentage till the time the company will be in the profitable situation.
If you reduce the salary of the employee, it will affect their future whenever they will apply for the new job. Because every company is deciding the new salary of the employee basis on the last salary drawn.
As per my opinion if company will think about the future of the employee then definitely employee will be stand with company in their losses or in the bad situation. Please think about the future growth
As well as about the legal things you can put them on contract basis or on professional basis where there's no need to compile with minimum wages act.
Regards Nilesh Kadam
27th April 2019 From India, Mumbai
No one is advocating reducing salary under normal circumstances.
It is desperate measure to save more jobs rather than save few jobs. In such situation you need to see pros and cons for employees. More jobs at less salary or few jobs at higher salary.
The sector is also important. Reducing salary in manufacturing doesn't give much savings as percentage of salary as overall cost is very less. The largest part is material cost.
Another point-Putting employees on contract does not absolve employer paying minimum wages. You need to pay minimum wages in all conditions.
27th April 2019 From India, Mumbai
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