How to Legally Implement Pay Cuts During the Pandemic Without Employee Backlash?

Hi, I have an issue in my company. I request you all to please help me.

Pay Cuts During the Pandemic

Due to this pandemic period, our management has decided to implement pay cuts in employees' salaries, and we have started deducting 15-20% of the gross salary. We don't have PF & ESI; we only have PT deduction.

Employee Concerns About Basic Salary

Now, one of my employees raised an issue, saying we can't change the basic salary. I explained to him that when the gross salary itself is changing, the basic will automatically change. However, he is not ready to accept this.

Seeking Legal Guidance

Please let me know the actual process to implement a pay cut in salaries without facing any legal issues.

Thanks,
Jyothi

Your colleague is right. The basic salary cannot be reduced. Whatever the salary is above the basic component can be reduced, but not the basic.

Possibly, you had assumed that if the gross salary is reduced, then there should be a reduction in the basic salary as well. However, there is no such legal provision. A reduction in the basic salary impacts gratuity and leave encashment as well. Therefore, one has to be cautious while reducing the salary.

Lastly, while reducing the salary, make sure that the reduced salary does not go below even the minimum wage. That would be a violation of the Minimum Wages Act.

Thanks,
Dinesh Divekar

Dear Dinesh Divekar, I do agree with you. Basic salary cannot be reduced. However, one can effect change in any matter related to service conditions listed in Schedule IV of the ID Act by giving notice as prescribed in the Act.

Schedule IV and Wages

Schedule IV contains matters relating to wages also. Wages mean all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment or of work done in such employment, and include certain allowances and exclude bonus, gratuity, and employer's share of EPF/EPS.

Changes to Basic Salary

What does it mean? In my view, you can make changes even in Basic also. But you need to protect the EPF/EPS. You need to follow the procedure under 9A.

Interim Order of the Honorable SC

I would also like to draw your kind attention to the interim order of the Honorable SC in Ficus Pax and others. By this interim order, the Honorable SC gave directions & guidelines for the settlement of wages during the lockdown, which has to be followed.

All the above is applicable to those who fall under the definition of a worker under the ID Act. If a person does not fall under the definition of a worker under the ID Act, you can still effect the change by agreement with such employees, in my view.