Salary Structure Changes: Can Your Employer Adjust the Basic Percentage Without Consent?

Can an employer change the basic component of the salary? For example, if my salary structure is defined such that the basic is 50% of the total gross salary for the last 4 years, can my company change it to 35% of the gross without my approval?

Thank you.

Employers have the right to change the basics as long as your gross pay does not get reduced or affected.

Thanks, borntosin and pon.

I discussed this with experts (a C.A. and a lawyer) and concluded that it depends on the company. If it is a public limited company, then one can take action; but when it is a private limited company, there is no hope to fight unless the offer letter (or last signed bond) has any details of the salary structure.

Thanks & regards,
Sachin.

I do agree with Sachin; it absolutely depends on company policy. There is no statutory obligation in this regard. Actually, a higher basic salary is always very useful to employees for statutory obligations. For example, if the basic salary is on the higher side, employees can get more HRA exemption as per the IT Act when calculating their tax liability. P.F. contributions depend on Basic Pay, and Gratuity payment also depends on the basic salary. In any case, to conclude, this absolutely depends on company policy.

Company does not change its basic salary structure because PF contributions increase from time to time but do not decrease.

Hi,

I agree with Balwant. You cannot reduce the basic component as it would affect the PF contribution. As per the Employees' Provident Fund and Miscellaneous Provisions Act, the employer cannot reduce the PF contribution, and hence the basic salary cannot be decreased.

Regards,
Smita

Hi,

I feel the company can always change the base salary and adjust the DA to ensure the PF contribution remains unaffected. However, there are several allowances/benefits linked to the base salary that may be impacted by this change.

Regards,
Shrinivas

Dear Sir,

Mohan has worked for 8 years in a company, and his basic salary was Rs. 25,000. After 6 years, they reduced his basic salary to Rs. 18,000, although his gross salary remained the same. Now, after 8 years, Mohan has resigned and smoothly handed over his responsibilities. On which basis salary will he get his gratuity?

Thank you.

Employers have the right to reduce basic wages but should not violate any provisions under the Minimum Wage Act.

Hekarthi

Legal Constraints on Changing Employment Terms

No employer can legally change the terms of service conditions stated in the offer letter/appointment letter, as it contains clauses that define the agreed terms of employment for both the employer and employee. Once the offer letter has been signed by both parties, no changes can be made without the mutual consent of the employee and employer, as per Section 9A of the ID Act. Any changes affecting workers, such as shifts, working hours, or service conditions, must be notified at least 21 days in advance to every worker before implementation.

Please refer to the case of T Rajamanickam v/s Binny Limited, where the Honorable Madras High Court ruled that reducing a worker's emolument without prior notice, contrary to the settlement between the management and workers, violates Section 9A of the ID Act.

Therefore, changes cannot be made without providing notice to workers or without the mutual consent of the employee.

Thanks and regards,

V. Shakya

HR and Labor Law Advisor

Unilateral Changes to Employee Salary

A suo moto change made by any employer to the salary of their employees, whether structurally or otherwise, in violation of the terms of the employment contract, is neither legally nor morally correct. The legal repercussions of such changes to the agreed salary depend on the class of employees likely to be affected. In my opinion, the constitution of the establishment is immaterial in this matter of unilateral change or modification of the terms of the employment contract to the disadvantage of the employees.