Can we reduce the Basic + DA from the salary - or any legal issues will happen?

Dear All, Namaste!

Currently, the employer has one salary structure, and now they want to change the salary structure of all employees without any changes in PF contribution (which means we have a ceiling of 15000 PF contribution). For example, if an employee has 60,000 Basic + DA and other allowances, the gross amount is 60,000, totaling 1,20,000. The monthly contribution for PF is fixed at 1800/-. If we make any changes in Basic from 60,000 to 30,000, will any issues arise or any legal problems occur? Please let us know.

Regards,
Raghu.

Employers have every right to restructure the salaries of their employees. However, in the case of PF-covered employees, the employer cannot reduce the PF salary with the objective of lowering their liabilities. This is clearly explained in Section 12 of the Employees Provident Fund & Miscellaneous Provisions Act, 1952.

In the cited case, it does not matter if you reduce the basic salary, as the PF salary ceiling is Rs. 15,000 and the monthly contribution is Rs. 1,800.

Dear Raghu,

I am of the opinion that the right of the employer to restructure the salary of his employees is not unrestricted. Such restrictions can either be statutory or ethical, depending on the capacity of their employment position, if the restructuring is likely to be disadvantageous to the employees concerned. For instance, we can find restrictions on the reduction of the basic salary to the disadvantage of the employee under the Industrial Disputes Act, 1947, and the EPF Act, 1952.

Though the method to determine the parity between the industry wages and the statutory minimum wages with reference to the components of wages falling within the ambit of the definition of the term 'wages' under the Minimum Wages Act, 1948, stands finalized by the Apex Court in the Airfreight Corporation case, the negative impact of the sum of such reduced basic and the dearness allowance for the purpose of computation of statutory gratuity was not brought to the notice of the Court. Undoubtedly, such a dispute, if raised, can be a valid one.

This apart, the proportionality criterion between the sum of basic, dearness allowance, and/or retaining allowance and all other allowances in the wage/salary structure introduced into the definition clause of wages under the Code on Wages, 2019, would be an insurmountable barrier in this regard when the said Code comes into force.

Therefore, an employer should take into account the overall statutory impact of such restructuring.

Though the employer has the right to restructure the remuneration structure, in the instant case, the employee will receive almost 50% less gratuity. If an employee resigns, dies, or retires and brings it to the attention of the controlling authority under the PG Act, it may create a dispute in the future by depriving the employee of less gratuity payment.

Moreover, at a monthly gross of 1,20,000/-, if the Basic & DA is 30,000/-, then it is 25% of the monthly gross - which does not sound well even as per the definition of Wages under the new labor codes.

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To Strive towards excellence with effort and integrity. usdhrs.in

The wisdom of Section 12 of the EPF Act is restrictive and prohibitive in reducing wages directly or indirectly. If wages are reduced without the consent of the workmen, it would amount to wage theft, which can be recovered under Section 15 of the Payment of Wages Act by the Prescribed Authority of the State or under IDA Section 33.