Dear All, I need valuable suggestions from you regarding this case. My friend's daughter is working under Company A, which is working for its clients. Now the client for my friend's daughter is going to close the business (reason being unable to survive in the lockdown). The company is now saying that since the client company is not going to operate, the employees will have to work for another client with a lesser salary, or Company A will also bid farewell to employees.
Can an employer reduce salary based on client change?
Can PF be deducted from the reduced salary? Currently, she is working from home with her appointment letter from Company A.
I hope experts will guide me on how to handle this situation.
From India, New Delhi
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4Can an employer reduce salary based on client change?
Can PF be deducted from the reduced salary? Currently, she is working from home with her appointment letter from Company A.
I hope experts will guide me on how to handle this situation.
From India, New Delhi
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Understanding the Situation
Ms. X is an employee of Company A, which supplies manpower to Company B (the client). Company B has closed down its operations. Company A has other clients, like Company C, but that client cannot afford the same salary as Company B paid. Ms. X can be deployed to Company C but with a reduced salary.
Legality of Salary Reduction for PF Contribution
Under Section 12 of the EPF & MP Act, a reduction of salary is not permitted. However, this applies only to the PF qualifying salary or the salary on which the employer contributes PF. Suppose the salary of Ms. X while working for Company B was Rs. 25,000, out of which Rs. 15,000 was the salary on which PF was being deducted. Now, with Company C, the salary would become Rs. 20,000, but the PF contributing salary would remain the same, i.e., Rs. 15,000. In this case, there is no issue.
The issue arises only when you reduce the PF contributing salary, i.e., Rs. 15,000 in the above example. If, for instance, Ms. X is joining Company C as a direct employee (not under Company A's rolls), then a reduction is permissible even on the PF qualifying salary. This is because it is up to the employee to decide on which salary he/she should accept the offer of employment. The EPF Organization cannot dictate that you should not join a company with less salary or that you should continue to contribute the same amount towards PF when you join another company.
At the same time, a reduction of salary below the amount of the PF contributing salary under the same employer is not permitted.
Example of Salary Reduction and PF Contribution
In another example, the gross salary of Ms. X is Rs. 50,000, and the PF qualifying salary while working with Company B was Rs. 25,000. Now, when she is deployed in Company C, the PF qualifying salary is brought down to Rs. 15,000. This is also acceptable as per the law. The employer who has been contributing PF on salary above Rs. 15,000 can bring it down to Rs. 15,000. There is a Supreme Court citation available. EPFO cannot question it, stating that Section 12 of the EPF & MP Act says that PF wages should not be reduced. The Hon. Supreme Court has ruled that EPFO cannot demand a contribution on salary above Rs. 15,000. The employer or employee can contribute PF on any salary above Rs. 15,000, but the EPFO cannot enforce and demand a contribution amount higher than Rs. 15,000.
From India, Kannur
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Ms. X is an employee of Company A, which supplies manpower to Company B (the client). Company B has closed down its operations. Company A has other clients, like Company C, but that client cannot afford the same salary as Company B paid. Ms. X can be deployed to Company C but with a reduced salary.
Legality of Salary Reduction for PF Contribution
Under Section 12 of the EPF & MP Act, a reduction of salary is not permitted. However, this applies only to the PF qualifying salary or the salary on which the employer contributes PF. Suppose the salary of Ms. X while working for Company B was Rs. 25,000, out of which Rs. 15,000 was the salary on which PF was being deducted. Now, with Company C, the salary would become Rs. 20,000, but the PF contributing salary would remain the same, i.e., Rs. 15,000. In this case, there is no issue.
The issue arises only when you reduce the PF contributing salary, i.e., Rs. 15,000 in the above example. If, for instance, Ms. X is joining Company C as a direct employee (not under Company A's rolls), then a reduction is permissible even on the PF qualifying salary. This is because it is up to the employee to decide on which salary he/she should accept the offer of employment. The EPF Organization cannot dictate that you should not join a company with less salary or that you should continue to contribute the same amount towards PF when you join another company.
At the same time, a reduction of salary below the amount of the PF contributing salary under the same employer is not permitted.
Example of Salary Reduction and PF Contribution
In another example, the gross salary of Ms. X is Rs. 50,000, and the PF qualifying salary while working with Company B was Rs. 25,000. Now, when she is deployed in Company C, the PF qualifying salary is brought down to Rs. 15,000. This is also acceptable as per the law. The employer who has been contributing PF on salary above Rs. 15,000 can bring it down to Rs. 15,000. There is a Supreme Court citation available. EPFO cannot question it, stating that Section 12 of the EPF & MP Act says that PF wages should not be reduced. The Hon. Supreme Court has ruled that EPFO cannot demand a contribution on salary above Rs. 15,000. The employer or employee can contribute PF on any salary above Rs. 15,000, but the EPFO cannot enforce and demand a contribution amount higher than Rs. 15,000.
From India, Kannur
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Thank you, Mr. Madhu, she is not receiving a new appointment letter, but Company A is planning to reduce her salary and extend the working days to six days a week, whereas before it was five days. My question is, can an employee object to this development, or does she have to comply with what the company says? She is a meritorious employee for the company. Even seniors seek her suggestions and appreciate her contributions. One thing I would like to add is that the company is implementing these changes for all employees, not just a single individual.
Thank you,
Sunil
From India, New Delhi
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Thank you,
Sunil
From India, New Delhi
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Employee Decision on Salary Reduction
It is for the employee to decide whether to continue with the company at a reduced salary or not. If she is okay with the pay offered, she can continue or leave the company.
Company's Right to Adjust Salaries
When the company is making profits, they give increments to all employees, and when the company is in trouble, obviously, the company can reduce the salary. But what is to be observed is that the revised salary is not below the notified minimum wages. So long as the minimum wage rates are covered, there is no legal issue for the company.
From India, Kannur
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It is for the employee to decide whether to continue with the company at a reduced salary or not. If she is okay with the pay offered, she can continue or leave the company.
Company's Right to Adjust Salaries
When the company is making profits, they give increments to all employees, and when the company is in trouble, obviously, the company can reduce the salary. But what is to be observed is that the revised salary is not below the notified minimum wages. So long as the minimum wage rates are covered, there is no legal issue for the company.
From India, Kannur
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