Facing a Dilemma: How to Restructure Basic Salary Without Hurting Employees?

Challenge in Restructuring Basic Salary

I am working in the Automobile Industry as an HR Manager. I am facing a challenge regarding reducing the basic salary of old employees whose basic salary ranges from 60% to 80% of the total CTC. The management now requires that their basic salary be decreased to 40% of the total CTC in a way that compensates for their past losses (Gratuity + Leave encashment) and future losses (Gratuity + Leave encashment) through CTC restructuring.

Please assist me and provide your best suggestions.

Regards,
Ram

You must have deducted PF based on their current basic salary. Now, if you reduce the basic pay, it would affect the PF as well, which, according to me, is not permissible. I would suggest you check from this point of view too, besides affecting the loss on account of their gratuity and leave encashment.

Legal Compliance on Basic Salary Adjustments

As per the Act, we can increase the basic salary, but we cannot reduce the basic salary, which would be non-compliance. Please get in touch with legal consultants and take their opinion on the same.

Regards,
Vinod Kumar
FSL

Impact on PF and Gratuity

It will not affect the PF if it is above the slab, i.e., ₹6,500, but it will affect the cadre below ₹6,500 and the gratuity of all employees in the future. You are the person answerable to PF officials and the employees as well. I would suggest that the basic pay can be reduced for the cadre above ₹6,500, but you will have to convince your employees regarding the gratuity amount.

Regards,
Sintralla

I agree with Malik. The basic salary cannot be reduced, but other components like PLI and special allowances can be adjusted.

Regards,
Pon