Facing Pay Cuts and Unpaid Leave: Is It Legal to Enforce Loss of Pay When Other Leaves Are Available?

Dear Friends,

My company (IT) wants to implement a pay cut for employees during the upcoming appraisal. This decision stems from an order from our headquarters (as it is a multinational corporation) to reduce operational costs in India; otherwise, the company may face closure. The Indian management, reluctant to shut down the company or lay off any employees, is exploring options on how to execute the pay cut for employees.

One option under consideration is a flat 5% salary reduction across all levels, which is straightforward. However, there is also a discussion on enforcing compulsory unpaid leave for employees.

My question is: when employees have other types of leave available, such as casual leave (CL) and paid leave (PL), is it legally permissible to enforce Loss of Pay (LOP)? Are there specific laws governing when LOP can be enforced, or is it merely an industrial standard to resort to LOP when other leave options are exhausted?

I have come across posts on the same forum advising companies to mandate compulsory leave with LOP. Is it within a company's rights to establish such a policy during a crisis?

Regards,
Jyothi

Dear Friend,

In the name of recession, corporates start cutting costs. We, as HR, basically have no clue about the financial data. If top management says to cut costs, the first thing we consider is manpower cost. However, there are other costs that impact financial results but go unnoticed.

As a prudent HR Manager, you have other options to convince your management before resorting to touching the manpower cost as a last option.

Perform ratio analysis (Year-over-Year realization and manpower cost, other operating costs) and then decide on the necessary actions.

Conduct ratio analysis of Year-over-Year realization and manpower cost of Junior/Middle/Senior Management in relation to revenue/realization.

There are various ways and means to reduce costs.

Has your management applied Value Driver analysis to identify if manpower cost has a major impact on your profitability?

Has your management identified the Critical Success Factors (CSFs) of your business?

Please never consider reducing manpower costs unless you are convinced that it is necessary. For any assistance, please reach out.

[Login to view]

Hi,

Thanks for the quick response. Yes, it is already the last stage of saving the company, and people are being laid off. All other measures have been taken since there is a major hit on the sales. Top management has already shut down 2 units in other countries and is asking others to cut costs by up to 50% in current expenses. Since we have already implemented other cost-cutting measures, this is the last step we would like to take amicably.

Please suggest how to implement pay cuts without hurting the sentiments of the employees. We value each employee here, so we don't want to lay off anybody. Instead, we would like to share the loss equally, with more significant cuts for top-salaried individuals and lesser cuts for others. I also noticed that if we implement percentage-based pay cuts, the top management may raise the salaries back to the current levels during future hikes. Therefore, I am considering implementing Leave Without Pay (LWP) to safeguard employees' interests later on without reducing their pay on paper.

Please advise if this approach is legal. Are there any laws that provide guidance on implementing Leave Without Pay? Or should we proceed with this plan as outlined?

Regards,
Jyothi