Can We Legally Reduce Basic Wages for PF, ESI, and Bonus After Delhi's Revised MW Notification?

Dear Members, as you are well aware of the significant minimum wage (MW) hike in Delhi, the subsequent court verdict, and the revised MW issued by the Delhi Government effective from 1st October 2018. I manage substantial manpower costs across India through various sub-contracts and outsourced agencies. The third party provides services based on a fixed service charge on the monthly actual CTC. Delhi region projects have substantial manpower costs due to the revision. Before I put forward my query, I would like to share the step-by-step points:

1. The Delhi Government declared a notification for interim MW revision effective from 3rd March 2017 with a significant hike of 37%.
2. The revision was challenged by many associations, and the Honorable High Court put a "STAY" on the revision concerning the members of the associations. The associations submitted that the Advisory Committee had not followed the proper process, contravening the principles of natural justice. However, the Delhi Government implemented the rates for establishments working in association with various divisions of the Delhi Government.
3. The rate (revised via notification dated 3rd March 2017) was quashed by the Honorable High Court via order dated 4th August 2018, and then the previous rate became applicable.
4. The High Court decision was declared on 4th August 2018. Meanwhile, the Delhi Government Labour Office issued two more notifications (implemented from 1st April 2017 and 1st April 2018).
5. After the High Court verdict, many establishments/employers reverted to the wages applicable before 3rd March 2017, even ignoring the notifications of 1st April 2017 and 1st April 2018.
6. Although the Delhi Government has taken the case to the Supreme Court, which is under hearing, and a final decision is awaited.
7. Meanwhile, to clarify, the Labour Office, Delhi Government, issued another MW notification where the impact of the "Interim Rate Revision Notification of 3rd March 2017" was removed. They considered the rates applicable before 3rd March 2017 and added the impact of two notifications (implemented from 1st April 2017 and 1st April 2018).

Now, my main concern is whether we can reduce the basic wages for PF, ESI, and bonus calculation. We have been paying the basic as per the MW Act Notification. Now, the appropriate government itself has issued a revised MW notification with reduced basic wages. As per the Payment of Wages Act, we can't reduce employee salary, but can we reduce the basic wages? This would help in reducing statutory costs. I need expert opinion and advice on the matter, please help me.

Ideally, if HC has stayed, then you can certainly reduce the payment as per the previous Basic + DA rate. However, if HC agrees to the same rate again, then you may have to pay all dues with arrears and penalties specified in particular acts.

Impact of Government Notification on Salary Reduction

It is not only the basic wages but the entire salary that is changed or reduced due to the quashing of the government notification. In such a scenario, you can also reduce the salary, including the basic salary. When you have been revising the salary, whenever there is an increase, you have every right to reduce it when there is a decrease. The intention of Section 12 of the EPF & MP Act is to restrict the act of employers reducing their burden of payment of contributions. Moreover, this situation applies to all establishments, and as such, there is nothing wrong with reducing the salary and thereby reducing the contributions.

We are not going to reduce anybody's wages because it has been around 1.5 years since the wages increased. Everyone has made their budget based on the higher wages. Any reduction will create an unrest situation among the workers. Moreover, in most cases, we pay more than the minimum wage in the form of allowances.

However, basic wages directly lead to other costs as well. Therefore, in order to optimize costs, I wanted to inquire about the above so that we can save to some extent on statutory costs.

Submitting a letter to the PF Office

To safeguard ourselves and our subcontractors, can we submit a letter (through the various subcontractors) to the PF Office stating, "Keeping in view the latest notification, the basic wages for PF have been revised as per the Minimum Wage Act"? Or can we implement the revised basic wages on our own without notifying the relevant authorities?

Future disputes and documentation

In case of any disputes in the future, what documents can we produce in our favor?

Thank you.

Understanding PF Contributions and Minimum Wages

You need not inform the PF authorities about the same because the PF authorities do not have any right to say that you should contribute based on the minimum wages or enforce payment of statutory salary. Though they can demand payment of contribution on gross salary (except HRA), they have no right to say that you are paying less than minimum wages. There are many employments that are not scheduled under the Minimum Wages Act. Can the PF authorities notify wages for these employments? No.

Now, if there is an employee to whom you are paying only, say, Rs 5000, which is below minimum wages, but you are deducting PF on that 5000, then the PF cannot demand that you should first increase his salary to 10000 or 15000 and then contribute PF on that higher amount. As far as PF authorities are concerned, they can only see whether you are contributing it on the basic salary, which is the total salary as per the definition. If you are paying contribution on the total salary, then PF has no say.

What is the impact of the recent Supreme Court judgment on PF deduction and contribution on payment of minimum wage, bonus, and gratuity?

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Thank you for your question regarding the recent Supreme Court judgment and its implications on PF deduction and contribution concerning the payment of minimum wage, bonus, and gratuity. The judgment may have far-reaching effects on how these aspects are handled in the future. It is essential for organizations to stay informed about any changes resulting from this ruling and ensure compliance with the updated regulations. If you have any further queries or require clarification on this matter, please feel free to ask.