Understanding the Impact of Basic Salary Reduction on Statutory Compliance and Employee Benefits

Dear Debojit,

There is no restriction for a reduction in Basic as a percentage of the total salary. However, the Employees Provident Fund Act restricts the reduction in Basic Salary in terms of an amount (in rupee terms). Therefore, you can proceed with the reduction of Basic in percentage terms but not in amount terms.

Hope this clarifies.

Regards,
Nishant Srivastava

Mr. Roy, we cannot reduce the basic because it's a part of the Minimum Wages Act of 1948, which is a statutory compliance under the act.

Dear Debajit,

I seek your help regarding the following query: What will be the possible legal barrier if I reduce the percentage of basic than the existing before increment? Please explain. Is there any fixed percentage for each column of salary component, and what if I make any changes to it? Please explain briefly.

Thank you,
Debajit Roy
Officer, HRD

---

Dear Smanisha,

Now, you can't reduce the percentage of basic salary. You have to fix the percentage of the basic salary in your HR manual and inform your employees about changes in the salary components.

Thank you,
Smanisha

Dear Mr. Debajit,
Keeping aside all legal jargons regarding this matter, reduction in basis salary may be possible if there is no Standing Order / Service Rules / Bipartite or Tripartite Settlements in operation in your organisation ; even these or any of these exist there is no provision against reduction in basis salary of employees .

All we have to do is to ensure that after reducing basis salary there is substantial increase in one’s take home per month. This may be done through maneuvering
other components of salary package e.g. LTA / Medical / Mediclaim / Insurance / Attire / Communication Allowances / Retention Bonus / Soft Furn . / etc.

However, it is always advisable to take into confidence all concerned employees by HR. Personnel through suitable means before venturing into reduction in basis salary of employees.

Regards,
Manoj


PS. Government Organizations will not come under the above purview.

Hi dear,

It will affect statutory compliances, gratuity, bonus, and EL. Additionally, any amount above these may result in punishment for violating conduct and discipline rules that have been finalized in alignment with the Employees Model Standing Orders, which are statutory. Please verify whether this is applicable.

GLN

You can reduce the basic salary of the employee in order to restructure the salary for whatever reason you have. All you have to make sure is that you are not reducing the salary below minimum wages. There is no rule in law where you cannot reduce the salary.

Regards,

Ritesh Kumar Gupta