Can Employers Adjust Basic Salary to Reinstate Driver Allowance After Promotion?

Dear Experts, I would like to seek your advice on this situation. If an employee was entitled to a driver allowance but subsequently the company changed its policy to only provide a driver allowance for a higher-grade employee, and the driver allowance was then absorbed into the basic salary, a few years down the road, the employee is now upgraded to the grade entitled to a driver allowance. Can the employer now reallocate from the basic salary to the driver allowance, i.e., reduce the basic salary and put the same amount towards the driver allowance?

Thank you.

The answer to your query depends on many factors such as the category of the concerned employee likely to be affected by the change, the applicable employment law, the terms of the contract of employment, the principles of wage and salary administration adopted by the management in tune with accepted universal practices in this regard, and the like.

Promotion and Career Advancement

Promotion ensures career advancement for employees as well as the availability of known talent to the organization. From the employee's perspective, promotion, per se, is a kind of career advancement with the upgradation of all the elements associated with higher responsibility.

On the other hand, the grant of a specific allowance available to a higher cadre without advancement means an enhancement of monetary benefits in the context of a practical impossibility caused by the rigid pyramidal structure of the organization, perhaps due to longer experience over time subject to satisfactory performance. In the latter case, it is certainly not a promotion but merely an upgradation to the entitlement of a facility previously unavailable. Therefore, in such a case, common sense would dictate only added advantages and not a reduction in the existing compensation package due to restructuring.

Kind regards

There is nothing in the law to prevent the company from restructuring its wage structure or components. However, if you are reducing the basic pay, there is no way the department will accept it.

Dear Jarode, No, you will not be able to reduce the Basic Wages. Section 12 of the Provident Fund Act prohibits the reduction of wages, as the contribution towards PF or Gratuity also reduces due to the reduction in the Basic Wage. The extract of the section is given below:

"12. Employer not to reduce wages, etc. No employer in relation to an establishment to which any Scheme or the Insurance Scheme applies shall, by reason only of his liability for the payment of any contribution to the Fund or the Insurance Fund or any charges under this Act or the Scheme or the Insurance Scheme reduce whether directly or indirectly, the wages of any employee to whom the Scheme or the Insurance Scheme applies or the total quantum of benefits in the nature of old age pension, gratuity, provident fund or life insurance to which the employee is entitled under the terms of his employment, express or implied."

Regards, Ashutosh Thakre

Section 12 does not apply here. Section 12 is where the salary is reduced to absorb fully or partly the cost of PF contribution of the employer. Here, the employee is already under PF, and the employer is currently contributing and will continue to do so. But, of course, I agree that the PF department will take objection. But they can't quote this section.

Dear Ashutosh and Saswata Banerjee, the questioner, Jarod, hails from Malaysia and works there too. Therefore, I think that the answers based on the provisions of Indian Labour Laws, though they are correct, may not be relevant. Moreover, there is no indication about the status of the incumbent's employment. It seems that the incumbent has, by the efflux of time or other reasons, been upgraded to the next higher post with the entitlement to a Driver's Allowance. So, in my view, the corresponding reduction in the basic pay of the individual will not be fair and correct, for it nullifies the monetary benefit of the very upgradation.