Can We Really Not Raise Salaries Before Completing Our First Financial Year? Seeking Clarity

We are a private limited firm established in February 2017. Currently, we are in the process of revising our salaries. However, a good friend of mine said that since we are a new company and haven't completed one full financial year, we are not allowed to increase our team's salaries. I wanted to check if this is true?

Dear Kharwal,

It is good that your company is planning to revise the salary of your staff. There is no stipulation for non-revision of salary for the first year. As per the law, the minimum salary is put under stipulation. However, if you want to pay more than that or you want to hike salaries, then there is no such stipulation.

Thank you.

Thanks, Manoj,

I still want to hear from other members. Not that I don't value your response, but the friend who advised me against revising salaries is an HR guy. Just want to be double sure here.

Other! Can you please chip in.

Dear Kharwal,

I fully endorse Shri Manoj's opinion. The principle is the capacity of the industry to pay; if it can be afforded, then why not? Indeed, it spreads a positive image and would definitely be a motivating factor. Even if you pay the minimum wages, they are revised after six months, and thus a salary revision is needed.

To conclude, though it is not necessary, an employer can revise salary depending on his paying capacity.

Dear Kharwal 123,

Here, you have to understand one thing: when an organization flourishes, employees are part and parcel of the process. As such, even if the establishment is new and doing well, there is no hard and fast rule to give salary hikes after a year. In general, the policy is that after a year of working, an employee is eligible for a salary hike based on their previous year's performance.

Understanding Salary Hikes

Statutes state that an employer has to pay minimum wages, and the VDA (Variable Dearness Allowance) has to be followed in the salary structure. The Labour department issues VDA every year or in a six-month period, as applicable, in the state.

Go ahead and suggest to your company to revise the salaries based on employees' performance, which will boost employee morale and improve the company's brand image. Keeping employees happy is always beneficial for management.

Dear Kharwal,

Yours is a nascent organization, and as such, the employees might be a mixed group of people, i.e., a combination of fairly experienced individuals and freshers in similar job profiles. Therefore, your present salary structure would be more or less on par with the Market Labor Wage Structure prevailing in your industry as a whole.

Reasons for Salary Revision

The need for a revision of the existing salary structure within a short span of time since the inception of the organization might have been prompted by different reasons, such as enhancing the competitiveness of the company by motivating the current workforce, attracting new talents, removing certain anomalies in the existing salary structure, and introducing Potential Performance Appraisals to retain star performers, among others.

Misconception of Salary Hike vs. Salary Revision

The advice of your experienced HR friend, though cautious based on frugality, seems to be, in my view, a misconception of salary hike versus salary revision. A salary hike is incremental based on performance appraisals at certain intervals or upon the passage of a predetermined time duration, like six months or one year, depending on the employer's practice. The employer is the sole judge of this. Simply put, it is the same percentage of a hike in any one component of the salary structure, mostly a raise in the basic salary only.

On the contrary, salary revision is a modification of the entire salary structure, including all primary components. To distinguish, a 15% increment relates to a 15% hike in any one component of the salary structure, mostly the Basic, whereas the same 15% salary revision implies a 15% hike in all components. The mismatch between the current pay/wage structure and the Market Labor Wage Structure acts as the general determinant of salary revision. In the case of unionized or bargainable categories of employees, salary revision is determined by Collective Bargaining. For other employees, employers undertake a periodical study of the pay scale patterns of similar job profiles in the market, and the salary structures are carefully designed or modified accordingly. Sometimes, to reward and retain senior employees who are frozen at the maximum scale, "longevity increase" or "stagnation increment" is also provided for in the salary revision.

By and large, you can opt for the salary revision of your employees, notwithstanding the fact that your firm is less than one year old. What is important is your ability to pay and the sustained contribution of employees to the growth of the company.