Can We Legally Reduce an Employee's Basic Salary and PF Deduction? Seeking Guidance

Dear Sir,

Kindly help me with the below-mentioned issue: "An employee's basic salary is Rs. 70,000, and his PF is deducted on Rs. 70,000. Now, we want to reduce his basic salary to Rs. 50,000 and deduct his PF on Rs. 50,000. Is it possible?"

Please provide reference to the relevant act and section.

Thank you.

There is no bar for such restructure; however, the gross salary cannot be reduced under the Payment of Wages Act.

There was a similar case on the same. At that time, the statutory limit was Rs 6500/-.

Case: Marathwada Gramin Bank

Here, the employer was contributing EPF above the prescribed limit of Rs 6500. Later on, he wanted to limit it to the prescribed amount of Rs 6500/-. The Regional PF office and the Industrial Tribunal did not allow it, so the employer filed a case. The judge held that the employer is obligated to pay EPF in accordance with the EPF Act. The bank cannot be compelled to pay an amount in excess of the same at all times. Section 12 of the EPF Act states that the employer should not reduce wages. However, this case indicated that when an employer is deducting and depositing EPF above the prescribed salary, they can reduce it to Rs 6500 per month, and in this scenario, Section 12 of the EPF will not be applicable. The PF office later issued a notification on the same.

I would like to add to what Shweta Nair has said: the EPF Organisation has no right to demand any contribution from the employer on a salary of more than Rs 15,000 (earlier it was Rs 6,500 when the Marathwada verdict from the Apex Court came). Therefore, you can reduce the PF qualifying salary but subject to a limit of Rs 15,000. Any reduction in PF qualifying salary below Rs 15,000 will attract Section 12 of the EPF & MP Act, and the EPFO can insist the employer pay a contribution on Rs 15,000.

Regards, Madhu T K