Employee Pay Increments: Is It Fair to Adjust Basic Pay Downwards?

Hi, We have prepared an increment for all our employees by utilizing one consultant. During the observation of the report, it was noted that for some employees, the basic pay components have decreased compared to the existing ones, whereas the increment percentage is adjusted in other allowances. Overall, the employee may receive an increment, but the basic pay is less than the existing basic pay. Please guide us on whether we can consider this increment sheet.

Impact of Reducing Basic Salary on Statutory Contributions

In a pay structure where the basic salary qualifies for various statutory contributions like bonus, gratuity, etc., reducing the basic salary is just unfair. If you have been contributing your PF on basic salary alone, then the EPF officer will not allow such a downward revision. In the future, when you calculate the gratuity, the employee can very well challenge that it is the total salary which will qualify for gratuity because the basic salary is just a component of salary for the convenience of the employer. Over the years, there have been decreases in it without letting the employee know the reason for that. Therefore, never reduce the basic salary unless there is a special intention to reduce it by way of punishment following a disciplinary inquiry against the employee.

Hi, Reducing the basic salary will result in a reduced PF contribution, which is not right. For the employee, there will be a hike in take-home pay, but if it affects the PF contribution, then it will not be legal. However, if PF wages are well above 15,000/- and both the employer and employee want to restrict the PF contribution to 15k, then it is allowed.

If you are reducing basic pay, which may result in a reduced PF contribution, your company will end up in a problem. It is statutorily incorrect to reduce basic pay (Please refer to Section 12 of the Employees Provident Fund & Miscellaneous Provisions Act, 1952).

Increment and Basic Pay Adjustment

It should be the other way around; after awarding an increment, basic pay shall stand higher.

Please look into this, and if required, do a sweeping overhaul of your existing pay structure and increment system.

As far as the CTC is taken care of (increased) with the increment, there is no problem considering the consultant's statement. Most companies work on the CTC rather than the monthly components.