Is It Legal to Cut Pay or Attendance? Navigating Labor Laws and Implementation Steps

Dear Sir/Madam,

My question pertains to whether a pay cut (salary or attendance) is legal or illegal as per labor law. How should one go about the process of implementing a pay cut or deducting an amount from an employee's salary or attendance?

Thank you.

Basic principle to follow is 'no work, no pay'. Divide the employee's monthly gross by 26 days or the actual calendar days and multiply by the number of days he/she worked in that month. Don't confuse deduction with non-payment.

Section 7(2)(b) and Section 9 of the Payment of Wages Act, 1936, provide for the deduction of wages in proportion to the absence, including for refusal to work. Therefore, based on actual absence, the salary can be deducted in the same ratio.

Understanding Pay Cuts and Deductions

The pay cut is something different from deductions from salary and wages. The term "pay cut" arises when an organization goes for a lay-off. I do not think your question is directing towards lay-off. If a pay cut has to be administered, then the organization has to obtain permission from the government; otherwise, it will be treated as illegal.

There can be a reduction in salary and wages if there is less attendance. Further, fines, penalties, deductions due for EPF, ESI, and advances, as well as other deductions for which the employee has given consent, are all possible. All these deductions are either legal or illegal.

Addressing Pay Cuts and Employee Policies

In your statement, the pay cut seems to relate to how well you have accounted for employee-related issues such as time and attendance, and the company policy on managing employee organizational culture related to the problem you have raised. If this is a fault you have discovered in an employee within the short term of your relationship with them, you, as a company, need to address that pay cut in the policy before making the actual deduction. Otherwise, introducing an employee to company policy related to procedures leading to a pay cut within three months and beyond warrants the company to discipline that employee in the form of a pay cut.