Hello,
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 ‘only’ 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 aren’t going to save much.
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 ‘only’ 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 aren’t going to save much.