Salary Reduction Dilemma: Can My Friend Sue His Ex-Employer for Cutting Pay?

Dear all,

I just came to know of an acquaintance whose salary was decreased by his employer, and he therefore quit his job.

As far as I know, no employer can decrease the salary of an existing employee under any circumstance, not even as a disciplinary action.

Can my friend sue his ex-employer? What is the procedure? Can he claim any money from the ex-employer?

Seeking your valuable advice.

This particular case is not about withholding increments, but rather a decrease in take-home salary. For example, if the employee was previously receiving $8000 take-home pay, it was reduced to $5000 (approximately).

The individual in question was an outsourced employee working on-site for the client. The client was very pleased with the employee's performance; however, the vendor, who had the individual on their payroll, reduced the employee's salary.

Dear Harsh,

The salary of an employee cannot be decreased unless there is a non-performance issue or a variable component rollback. However, decreasing the in-hand amount doesn't necessarily imply a decrease in salary, as there may be various reasons for it.

If the client is satisfied with the employee's performance (which depends on the actual feedback), then the performance might be considered good, and in such cases, there should not be a question of reducing his/her salary. It is also possible to increase the in-hand amount without increasing the CTC. Therefore, I believe you should also address these issues.

Thank you.

Dear,

If you are a workman under the Industrial Disputes Act, you can raise a claim under section 33(c)(2) of the ID Act, subject to the above condition. Otherwise, if you are drawing up to Rs. 6500 wages, you can file a claim under the Payment of Wages Act. Additionally, you can inform PF Authorities if covered under the PF Act.

Thank you,
akmalhotra

As per Section 12 of the Employees' Provident Fund Act, 1952, the basic salary of any employee covered under the said Act cannot be decreased. However, as a form of punishment, the salary can be maintained at the basic level even if the Cost to Company (CTC) is reduced.

Dear,

Let us say a company does a revision of the entire salary structure, wherein adding allowances and reimbursement heads. This maintains the CTC, increases the Cash in Hand, but the amount kept under Basic pay decreases. This affects the PF contribution, and to some extent, it is decreased for some employees. Can that company do this? Please help. I'm confused due to the said section 12 of PF Act 1952. Please remember that the take-home salary has been increased, but the basic pay decreased to divide the CTC into different heads.

Dear Harsh,

Greetings!

As per Prabhakar, if your friend's basic salary amount is maintained (not decreased), then you can't file a case. Otherwise, as per the PF Act, you can file.

My company is planning to reduce the basic salary of all existing staff and add a new tax-free component to the salary structure, which affects statutory compliance. Please advise whether they are right to do so.

Thanks & Regards,
Priya

Restructuring Salary and Employee Service Conditions

Restructuring salary will involve a change in the service conditions of employees, which can be made effective only after giving 21 days' notice of such changes as per Section 9A of the Industrial Disputes Act.

Reduction of Wages as Punishment

Reduction of wages as a punishment is permissible if the certified Standing Orders of the company permit it. Reduction of PF wages (PF wages mean basic salary and dearness allowances on which PF is deducted and contributed), though not permitted under Section 12 of the EPF & MP Act, is permissible if it is not below Rs 15,000.

Regards,
Madhu.T.K

Hi Harsh,

A private employer can reduce an employee's salary if the employee fails to meet the performance standards of the employer (it can apply to other terms and conditions of the employer too). However, this is a very stringent action that is used as a last step as it is highly demotivating.

Your friend can't sue the ex-employer nor get any money from them. If your friend really wants to improve, then he should find out from the employer why exactly his salary was reduced and how he can improve his performance (if that was the reason).

Dear,

Reduction of salary in the future, i.e., by withholding of increments, can be done provided it is implemented as a punishment for misconduct, and that too after following due process by conducting a domestic enquiry. Another way is through a settlement with the workmen to avoid layoffs or closures involving the Government authorities, i.e., the Deputy Labour Commissioner.

With Regards,

V. Sounder Rajan

Email: rajanassociates@eth.net

Hi Harsh,

I am in complete agreement with Mr. Sunder Rajan. Salary or wages paid to employees reflect the relative market worth of the job. If an employee is unfit or their performance is unsatisfactory, the employer can provide notice with a reasonable opportunity to improve, which may include demotion with a reduction in pay (salary). However, this action of demotion and pay reduction only occurs during the probation period.

Once an employee has established their competence beyond the probation period and the employer has continued their services without raising objections to their competency in performing the job, the employer cannot reduce the employee's pay unless a notice with justification for agreement to this effect is issued due to reasons beyond their control. With mutual agreement between the employee and employer, a salary reduction can be implemented.

An employee's salary is always protected by the law once the employee has completed the probation period and thereafter.

Regards,
Sawant