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 wanted to change the salary structure of all employees without any changes in PF contribution (Which means we have a ceiling of 15000 PF contribution)
Ex: if an employee has 60,000 Basic + DA and other allowance is 60,000 Gross = 1,20,0000.
The monthly contribution for PF is 1800/- is fixed.
In case, we made any changes in Basic from 60,000 to 30,000, any issues will arise or any legal issues will happen.
Please let us know.

Regards,
Raghu.

Employer has every right to restructure the salaries of their employees. But, in the case of PF covered employees, employer can not reduce the PF salary, with an objective of reducing their liabilities. This is clearly explained in Section-12 of Employees Provident Fund & Miscellaneous Provisions Act, 1952. However, in the cited case, it does not matter if you reduce basic, as the PF salary ceiing is Rs.15000/- and monthly contribution is Rs.1800/-

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 finalised by the Apex Court in Airfrieght 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 unsurmountable barrier in this regard, when the said Code comes into force.

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

Though the employer has right to restructure the remuneration structure, but in the instant case the employee will get almost 50% less gratuity. If any employee resign or death or retire and brings it to the knowledge of controlling authority under PG Act, it may create any dispute in future for depriving the employee for less gratuity payment.

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

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531
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The wisdom of Section 12 of EPF Act is restrictive and prohibitive to reduce the wages directly or indirectly. If reduce 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.