Salary Rollback Dilemma: Can We Adjust PF Contributions After a Raise?

Dear All,

I would like to share my query with you and request you to provide a solution. In my organization, management had increased the salary of some employees. However, after the disbursement of the November month (increased) salary and PF challan generation, management has changed their decision and informed me that we will not increase the salary of 2 employees.

As I mentioned, I had already generated the PF challan based on the revised/increased basic amount and paid in December. To my knowledge, once the increased basic amount is mentioned in PF, we can't decrease the employee's basic. Nevertheless, I want to revert their basic to the previous amount.

Resolution Options

Is there any option to resolve this issue? Can I adjust the basic salary next month for PF and pension? If yes, what would be the procedure and rules to follow?

Information

- Employee 1: November basic salary was 12,600, Revised basic: 13,400
- Employee 2: November basic salary was 11,600, Revised basic: 12,400

Kindly provide your suggestions.

Thanks & Regards,
Anjali Singh

Hi,

Once there is any upward revision in the increment, we should not revise the same downward. Considering the basic, I assume that both employees are not taxable employees.

I believe it would be more appropriate to revise other allowances. If you have specified a Special Allowance, you can adjust it accordingly; otherwise, you may adjust portions of other amounts such as HRA, Medical Allowance, and Conveyance allowance.

Thank you, sir, for your prompt reply. Could you please suggest if, in case we don't want to increase a single penny and want to consider the same structure (last one)?

You can bring the basic down. It was only for a month. If the matter comes for review, you need to have documentation that it was done by mistake. The law prevents you from decreasing basic to absorb FP cost. It does not say you cannot reduce a person's salary.

Section 12 of EPF & MP Act

I draw attention to Section 12 of the EPF & MP Act, reproduced 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.

Thanks

It's not at all an issue if the PF dues for a particular month exceed the normal dues that are remitted every month to the employee's account. Such incidents happen whenever there are any payments done by way of "arrears." This may be a result of:

- Late declaration of increments by the establishment, or
- Because of an associate's resignation whereby the establishment keeps his last (or even previous) month's salary on hold and settles it along with his Full & Final Settlement on the date of his exit from the company.

So, there is nothing to worry.

Good Luck,
A.B.

Mr. Gupta,

Please read the second line of your post - by reason only of his liability for the payment of any contribution to the Fund. This, therefore, will not apply in the given case. The reduction is only for 2 of the employees; the rest continue to get increased increments. Further, the reduction is not to cover PF liability but because the increment was wrongly applied.

Mrs. Anjali,

Once you have increased the basic salary, the law does not permit a reduction in the same. If you don't increase the salary, the law will question you if it is reduced. As our friend Mr. S. Banerjee mentioned, since it is a matter of one month, you can provide documents for review to explain. Be cautious in the future and avoid such practices that do not promote a healthy work environment.

Adoni Suguresh
Labour Laws Consultant

Mr. Saswata,

It is not a case of "the increment was wrongly applied", but it is a case of, as per the queriest, "after disbursement of Nov. month (increased) salary and PF challan generation, management has changed their decision and told me that we will not increase the salary of 2 employees." This gives the understanding that management wanted to change their decision for the "reason only of his liability."

However, my understanding may differ.

Thanks,
V K Gupta

No, sir. The reduction is not on account of the liability of PF. It is a decision of the management that they do not want to give the increment or that the increment was wrongly applied to these two employees. The concept of reduction only on account of liability refers to a completely different scenario. In the case of an employee to whom PF applies for the first time (e.g., when the firm has 20 employees for the first time), and therefore PF is now a liability of the employer, increasing his cost, the employer cannot reduce the salary of the employee to fully or partly absorb the PF costs. In other cases, there is nothing stopping an employer from reducing salary. It may be an industrial dispute, but the law does not prevent the reduction of wages as such.

As Saswata has explained, Section 12 applies only when the intention is to escape from PF liability. However, in this case, it relates to two employees, and there is no intention of reducing the PF liability.

In a scenario where an employee has been awarded a punishment of reduction to a lower grade or a reduction of two/three increments for any misconduct, it will be the basic wages or the PF qualifying wages that will be reduced. In such cases, the PF Organization cannot challenge, saying that it is against Section 12 of the EPF & MP Act. Of course, the employees aggrieved can raise an industrial dispute over the issue, alleging that they were not given any opportunities to be heard, nor any show cause notice/charge sheet was given and an inquiry conducted before awarding such a punishment.

In an organization which has its own certified Standing Orders and proper HR practices, this kind of situation will not be seen. However, these kinds of bad practices are prevalent in organizations where policies are not framed. In such organizations, the employees will not take any step against the management and will easily accept whatever paper is given to them. If so, give them an antedated office order stating what has been decided by the management and the decision of holding the increments granted and take the acknowledgment of the employees.

Regards,
Madhu.T.K