Reducing salary without valid reasons is unfair. If the salary reduction is due to financial crisis as discussed and decided among the employees, you can implement it. But while doing so, you are not expected to reduce certain components of salary. They are basic salary on which your PF, Bonus, leave encashment, gratuity etc are calculated. Though I have different views with regard to basic salary and that view supports the old Apex Court verdict in Roofs and Bridges case, coming to general scenario where basic salary means one of the components of salary on which certain benefits are calculated should not be reduced. Section 12 of the EPF & MP Act prohibits such act of reducing the basic salary( PF qualifying salary)
All employers give salary hike every year. But there are employers who give it only in 'other allowances' and no increase is made in basic salary. Can they reduce the basic salary? Is it ethical to do so? NO.
Legally, to an extent, reduction of basic salary is permitted if the performance is that bad. It can also be inflicted as a punishment following any disciplinary action. But while doing so, the employer should observe one thing, that is, the wages so reduced should not fall below the statutory minimum wages notified by he government!