Salary Structure Changes: What Legal Issues Should HR Consider When Adjusting Basic Pay?

Respected Seniors,

I seek your help regarding the following query. What will be the possible legal barrier if I reduce the percentage of basic than the existing before increment? Please explain. Is there any fixed percentage for each column of the salary component, and what if I make any changes to it? Please explain briefly.

Thanking you,

Debajit Roy Officer HRD

Roy,

You can't reduce the Basic component because based on it, we calculate the statutory components. You can change the variable components as per your terms.

Dear Debajit,

The employer cannot reduce the benefits of an employee. As you are aware, all the benefits of an employee are in proportion to the basic salary. Therefore, a reduction in basic salary would affect his/her pension, gratuity, PF, etc.

Regards,
Dhanesh

Dabas,

Here, it is not an issue of the percentage of the basic salary, but about the reduction of the basic component that is being implemented.

Dear Mr. Roy,

As for the basic salary, you cannot reduce it. Doing so would affect statutory compliances, gratuity, bonus, and EL. It is advised that you can increase your basic salary, but you cannot decrease it.

Warmest Regards,
Mohan M. S

Debojit,

Please check once you send an email to anyone. Being occupied in a very important position, you should be careful when sending messages or requests. If you check your posts, there are lots of corrections to be made. Never take things easy as it reflects your attitude. You even misspelled "seniors" as well. Please use spell check when you draft a message.

Now coming to the point of Basic Salary... No, you cannot reduce it once it is compensated every month.

Dear Deobjit,

The basic salary cannot be decreased since most increments are calculated as a percentage of the basic salary. However, one can make changes to other interdependent components of the salary.

Regards,
Arslan Ahmed

Dear Debajit,

If you reduce the basic salary of the employee, apart from the statutory compliances, it will also create negativity among the employees. Being an HR professional, you should always think about the employees' welfare. If it's not possible to increase the monthly salary of the employees, then please keep the basic salary unchanged. You can add some kind of annual variable, retention incentive, or performance-based incentive to increase their salary. This approach will raise the annual salary without affecting the take-home pay of the employees.

Regards,
Sakshi

I am not sure if I will be able to agree with the point that Basic cannot be reduced. There is no legal binding on this. Yes, I do agree with the fact that it will affect all terminal benefits which are linked with Basic salary.

Basic's compensation policy is to ensure that employees take home at least the same net salary after taxes. If you are ensuring that, then adjusting the components within the salary should not be a problem.

While employee emotions are attached to Basic, however, with changing trends, many of the younger generation want more take-home salary rather than an increase in their PF or Gratuity.

Regards

Dear Friend Debjit,

"Basic" is a very sensitive subject. The prescribed minimum wages need to be taken care of. When we faced the same problem, the treasure of CiteHR blessed us with the attached judgment.

Hope the attachment gives you clarity. :)

Dear Debojit,

There is no restriction for a reduction in Basic as a percentage of the total salary. However, the Employees Provident Fund Act restricts the reduction in Basic Salary in terms of an amount (in rupee terms). Therefore, you can proceed with the reduction of Basic in percentage terms but not in amount terms.

Hope this clarifies.

Regards,
Nishant Srivastava

Mr. Roy, we cannot reduce the basic because it's a part of the Minimum Wages Act of 1948, which is a statutory compliance under the act.

Dear Debajit,

I seek your help regarding the following query: What will be the possible legal barrier if I reduce the percentage of basic than the existing before increment? Please explain. Is there any fixed percentage for each column of salary component, and what if I make any changes to it? Please explain briefly.

Thank you,
Debajit Roy
Officer, HRD

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Dear Smanisha,

Now, you can't reduce the percentage of basic salary. You have to fix the percentage of the basic salary in your HR manual and inform your employees about changes in the salary components.

Thank you,
Smanisha

Dear Mr. Debajit,
Keeping aside all legal jargons regarding this matter, reduction in basis salary may be possible if there is no Standing Order / Service Rules / Bipartite or Tripartite Settlements in operation in your organisation ; even these or any of these exist there is no provision against reduction in basis salary of employees .

All we have to do is to ensure that after reducing basis salary there is substantial increase in one's take home per month. This may be done through maneuvering
other components of salary package e.g. LTA / Medical / Mediclaim / Insurance / Attire / Communication Allowances / Retention Bonus / Soft Furn . / etc.

However, it is always advisable to take into confidence all concerned employees by HR. Personnel through suitable means before venturing into reduction in basis salary of employees.

Regards,
Manoj


PS. Government Organizations will not come under the above purview.

Hi dear,

It will affect statutory compliances, gratuity, bonus, and EL. Additionally, any amount above these may result in punishment for violating conduct and discipline rules that have been finalized in alignment with the Employees Model Standing Orders, which are statutory. Please verify whether this is applicable.

GLN

You can reduce the basic salary of the employee in order to restructure the salary for whatever reason you have. All you have to make sure is that you are not reducing the salary below minimum wages. There is no rule in law where you cannot reduce the salary.

Regards,

Ritesh Kumar Gupta