Restructuring Salaries Due to Labor Code: Do We Need New Appointment Letters to Avoid Legal Risks?

Dear Experts, please advise here.

Restructuring Salary Components Due to Labor Code Implementation

XYZ Company plans to restructure its current salary components due to the expected implementation of the labor code. These changes will have a few impacts on employees' take-home pay. The company has already issued appointment letters to all employees and now wants to make these changes. The new changes will be communicated to all employees via meetings, and the company has an HRIS tool where it has access to all employees' salary information.

Legal Implications of Not Issuing Revised Appointment Letters

In this scenario, is it a requirement to issue a revised appointment letter to all employees? If not issued, are there any legal risks in the future?

Thank you in advance for your points of view.

Greetings,

In regards to reworking the salary structure to meet the new wage code bill (expected to be implemented in the future) for employees in your company, it is necessary to communicate the same to employees in the first place, which you have done or are planning to do.

When this task was carried out in our company, we ensured that the net pay did not change. A consequence of this was an increased cost to the company as the benefits (gratuity and employer PF) increased since the basic salary has to be 50% of the CTC. However, we took it up and had no qualms from employees as the net pay remained unchanged. Reworked appointment letters with the new salary structure were shared.

Legal perspective on issuing revised appointment letters

In your scenario, with a significant impact on net pay, it is highly necessary to issue revised appointment letters. To provide a legal perspective:

1.) According to the Karnataka Shops and Establishments Act, it is necessary to issue appointment letters with accurate information such as designation, terms of employment, etc. Please check if similar clauses are present in your state of employment.

2.) Meetings are an oratory form of communicating change. The changes have to be documented on company letterheads should any issue arise in the future.

Thanks,
Lucy