Salary Reduction Without Notice for Non-Performance: Is It Legal for Assistant Managers?

First of all, HAPPY HOLI to all the HR professionals here. My question is: Can a company reduce the salary of an employee based on non-performance grounds without any notice or letter? Which laws are applicable in this regard if the person is at the assistant manager level and the salary is around 30k?

Hello,

The basic principle to be followed while taking any disciplinary action with an employee is that he should be given enough opportunities and reminders before any such step is taken. The idea is to bring in the principle of natural justice alive. If after several reminders and opportunities (in written and oral by the supervisor or the management) proves futile, any such negative action can be taken. However, he/she should be given a fair idea of what the consequence would be.

There is no legislation governing white employees.

Regards

Hi,

I agree with Sunil. An employee must be given a chance to improve through verbal/written counseling. However, despite all your efforts, if things don't work out, then it is better to relieve him from the company rather than reduce the pay. I seriously doubt what the person can perform after his pay has been slashed. Why hold on to him? Why not replace him?

Hi Friends,

When you hire any employee, you give him the first offer letter and then the appointment letter. Both of these letters are contracts between the employer and the employee. Compensation is a part of these contracts. Any modification in these documents requires the consent of both parties. Therefore, when you revise the salary, you should provide the employee with a salary revision letter. Similarly, when you downgrade an employee's salary, you must give them a written communication along with an explanation for the change. Any unexpected reduction in salary without the employee's consent may lead to unnecessary legal complications.

Regards,
CS Mukesh Tank

Hi,

It would be interesting to know what the implications are of reducing salary on statutory benefits like PF. If I'm not mistaken, PF contributions cannot be reduced by the company. Is the reduction of salary on grounds of non-performance, and hence reduction of PF as a linked component, valid in legal purview?

Regards,
Sovan

Dear Sovan,

Reducing wages/salary as part of punishment for non-performance and deducting Provident Fund contribution (as well as ESI contribution or welfare fund contribution) from the salary are two different things. The former shall be done after following a procedure, such as performance appraisal followed by the issuance of letters requiring the employee to improve, issuance of a show-cause notice to explain why action of reduction to a lower scale of pay should not be initiated, conducting an enquiry if required, etc., are carried out.

On the other hand, deduction of statutory contributions from salary, like PF, ESI, etc., is permitted even if it is not mentioned in the appointment order. Not only EPF or ESI, but any deduction permitted by Section 7 of the Payment of Wages Act is legal. Yes, certainly, any amount to be contributed by the employer towards these social security schemes should not be deducted from the salary.

Regards,
Madhu.T.K

Dear Sovan,

To reply to your question and start from where Madhu Sir left off, the basic salary of a person, if reduced without any valid reason or proceeding, is not allowed as the PF component will be affected. However, if the salary (and as a consequence, the basic salary) has been reduced following the legal route as explained by many in this thread, there would be no legal complications.

The very important consideration is being missed out here. The designation of Asst. Manager does not prove that the employee is a white-collar employee. The Hon'ble Supreme Court in a series of judgments has made it very clear that it is the nature of work that decides the status of an employee as whether 'Workmen' or 'Manager'. Section 2(s) of The Industrial Disputes Act 1947 is very clear on this aspect. If an employee can prove that he/she is a workman, then the disciplinary action can be taken only within the boundaries of Model Standing Orders. The Standing Orders provide a warning, a fine, suspension not exceeding four days, and dismissal without notice. If any other action has to be taken, the organization must have its Certified Standing Orders in which the provision of a reduction of salary must be mentioned as one of the punishments.

Even if an employee does not fall under the definition of a workman or is not considered a workman as per the certified Standing Orders of the company, you cannot initiate punishment without giving him an opportunity to prove his innocence. Doing so denies justice and goes against the principles of natural justice.

An Assistant Manager, as stated by Manish, does not necessarily belong to the Managerial or Supervisory cadre. Following the Apex Court's verdicts, employees authorized to approve leave for their subordinates, initiate disciplinary action against their subordinates, or appraise their subordinates are those employees who fall outside the scope of the definition of workmen. While the employment contract will be crucial for these categories of employees, the essence of HR, which is natural justice, should not be overlooked.

Regards, Madhu.T.K

Dear all HR professionals,

I am immensely thankful to all the members who responded to my query. Now, the situation is quite different. Even after the deduction of the salary, the person stays in the company and has started performing. However, the management is ignoring this and is not showing interest in reversing the decision of the salary deduction.

Thank you.