Can We Legally Reduce an Employee's Basic Pay Mid-Year? Understanding the Rules and Impact

Hello all,

Can we reduce the basic pay of an employee mid-way during the year? If yes, how - what are the formalities to be conducted? If no:
1. Under which act, section, clause of the act?
2. How does it impact the individual, company, and statutory compliances?

Please mail me at kanishk.mallick@gmail.com.

Thanks & cheers,
K

Dear,

You cannot reduce someone's basic salary, not midway or at the end. It is not specified in any act. However, you can correlate this with the PF Act, as it is stated in the PF Act that you cannot reduce the PF contribution of any individual, and if you decrease the basic salary, the PF contribution will also decrease.

Ethically, we have never heard of any organization reducing the basic salary.

Thanks,
J S Malik

Dear Sir,

Please refer to Section 12 of the PF Act. The Karnataka High Court has given a judgment in RPFC Bangalore vs. Harihar Polyfibres in 1991. An employer cannot reduce wages of the employee for the purpose of payment of contribution under the Act.

Thank you,
J. S. Malik

As others have rightly mentioned, ensure not to alter any of the salary components which have a direct impact on the statutory contributions. Particularly, PF is one such component that is always under guard for the labor department. Also, there is nothing like the changes that cannot be done in the middle of the year. Usually, people implement new things at the beginning of the year to ensure that tracking and documentation are kept simple at the time of filing.

Hi,

Basic pay, once paid, cannot be reduced as most of the perks and benefits/allowances are paid based on basic pay, such as PF, ESI, LTC, medical reimbursement, gratuity, etc.

Regards,
Jyoti Negi

Dear,

Basic pay cannot be reduced; it would be a violation of sec. 12 of the EPF & MP Act - 1952. This reduction would impact an individual as, with a decrease in their basic pay, other perks and allowances linked to it would also be reduced. Similarly, reducing the basic pay would result in reduced PF contributions, EL Encashment, Gratuity, etc.

It is observed that a company has not reduced the basic pay but has rather frozen increments.

Thanks,
Mohd. Arif Khan

Dear All,

Reduction of basic pay is possible as a measure of disciplinary action against an employee, provided a provision to this effect is there in service rules by which the employee is governed. In other words, this will be like a penalty that can be inflicted after giving him adequate opportunity to defend himself or herself and following the procedure for imposing such a penalty. However, I am not sure if this procedure of giving adequate opportunity for defense is being followed in the private sector. Arbitrary actions of this kind may invite legal implications.

Regards,

Deepak Mathur

Dear all,

I am working in a private diagnostic center as a nurse. Reduction of basic pay is possible at the time of yearly increment because I am worried about my PF; everything depends on the basic pay. So please help me out.

Strategically, logically, and legally, no. You cannot reduce the basic because all the payments are connected to basic. You can only do that at the time of an increment; you can reduce the basic wage and add the amount in allowances. The Government of India is planning to fix the basic wage for all positions at 70%, but it is not yet finalized, and no Government Order (GO) or Gazette publication has been released. This is part of addressing all the issues related to the split in minimum wages and bringing commonality across.

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