Reduction Of Basic - Salary Reduction

Dear Members
Need your advice on whether it is possible to reduce the basic salary of an employee during any compensation restructuring exercise?. e.g. currently the employee basic as % of CTC is 50% and as per the new structure organisation wants to bring the basic as % of CTC to 40%, so is it legally possible to bring all the employees to 40%?.

Hi Sdix,
The company can change it to 40% on it's own will.
However you have to make sure that you do not voilate statutory compliances like pf, esic, minimum wages, bonus etc.
For example, if the basic salary of an employee is Rs. 7000 (in present structure), you can exempt him for PF contribution(limit being 6500). But, after making 40% as the basic salary, it would become 5600 (14000*40%) . So, PF contribution becomes mandatory. In turn, this may lead to increase in CTC as the employer also has to contribute!!:icon1:
Also, make sure that because of this change, minimum wages payable are not affected.
Let me know if i can clarify more...
Regards,

Hi Sdix,
One can increase or reduce the Basic. However, care should be taken that it is standard for all the employees. Lesser Basic also helps the employee to get more take home salary as the PF contribution will be reduced to that extent. This is generally more helpful for employees who are in the low income group as they are more interested in their Take home and not their CTC.
Regards,
raga

Dear,
Basic salary for an employee cannot be reduced as i has impact on PF, Gratuity, ESI etc. there has been cases on the same lines where when the case went up to supreme court for hearing the reduction in basic was restored as i impacted on PF, Gratuity, ESI. hence, it cant be done.
If you do this and employee goes to court then the decision will not be in your favour
Regards,
Nilendra

Thanks Nilendra, this was the reply i had heard from many of my friends and some PF experts, the main issue is understand is that the company needs to approach the PF commissioner with a solid case for approval. Also heard that the request is usually turned down. Could you please help me with any case / court case, reference where this issue has been taken up.

Raga, thanks for the inputs, but i understand its not very easy, has to be proved and a lot of statuatory approvals are required, and if you have your offices at different locations all the more hassles as you need approval from multiple PF commissioners office.

Hi Sdix,
I agree with Nilendra.
At the same time, it also depends on the kind of workforce you have. If it's a factory with a union, you have to be very careful.
However, if it's an industry like IT, where employees understand these things, you can give a letter for revised salary structure to the employees and take their acceptance on the copy of the letter. Also, it depends on the number of employees.
This should suffice your requirement.
Request seniors to comment...
Regards,
ash.pgdm

please let me know if one employee having 5000 - basic and 2000 - Da then how we do the calculation for PF and Esi
Please provide me similar cases i m very confused
Regards
Ashi

Hello people!
I am in dire need to complete my task (project) on Reduction in cost on recruitment and to evaluate the training programme.
Please folks, guide me which is the best inexpensive way to establish a reduction in cost to the enterprise and the methods to measure the training programme whereby both the company and the employess benefit.
Thanks in advance and hoping to here from you asap.
Kate.

Hi!
Can u tell me how to reduce expense on recruitment methods and how to evaluate training programme, these are my project topic, please do provide inputs...ne info is welcum @ [Login to view]
Thanks!