Dear All,
Will appreciate your comments/suggestions/views on whether salary freeze is legal in India? My question is generated in the background of current gloomy conditions of the economy and financial conditions prevailing in the country and outside.
Are there any exemption for salary freeze and to whom are the exemption made towards
It will be helpful if your views are backed with appropriate Laws/Acts.
Many Thanks
Pete
From India, Mumbai
1Will appreciate your comments/suggestions/views on whether salary freeze is legal in India? My question is generated in the background of current gloomy conditions of the economy and financial conditions prevailing in the country and outside.
Are there any exemption for salary freeze and to whom are the exemption made towards
It will be helpful if your views are backed with appropriate Laws/Acts.
Many Thanks
Pete
From India, Mumbai
The Payment of Wages Act, 1936 tells about authorised deductions from the salary. The Act also makes it mandatory on the part of the employer to make payment within a stipulated time. (ie, within 7 days in a company employing less than 1000 employees and within 10 days in other companies)
If we follow the said Act, an employer is not suppose to make any deduction from the salary other than that specified u/s 7 of the Act. As such deductions for absence (leave without pay), fines, for damages caused to the company, for EPF/ ESI etc, approved housing loan, LIC etc etc are authorised deductions.
Freezing of salary can be interpreted as non payment of salary or payment of salary with unauthorised deduction. That is against the provisions of the Payment of Wages Act.
The Industrial Disputes Act, 1947 also does not seem to support the act of an employer freezing the salary of employees merely on the ground of economic crisis. If we read the provisio to section 25 FFF of the ID Act while dealing with compensation payable to employees who are retrenched due to closure of undertaking due to unavoidable reasons beyond the control of the management/ employer, financial losses or crisis is not taken as maintainable reason. Similarly, while dealing with waiver of damages payable by the employer for non remittances of EPF dues in time, no excuse is given for reason of financial crisis.
As such I beleive that freezing of salary due to economic crisis shall not be permitted in law. Certainly, due to good industrial relations, employees may agree for a deduction but if any one objects, the employer cannot proceed with it.
Regards,
Madhu.T.K
From India, Kannur
If we follow the said Act, an employer is not suppose to make any deduction from the salary other than that specified u/s 7 of the Act. As such deductions for absence (leave without pay), fines, for damages caused to the company, for EPF/ ESI etc, approved housing loan, LIC etc etc are authorised deductions.
Freezing of salary can be interpreted as non payment of salary or payment of salary with unauthorised deduction. That is against the provisions of the Payment of Wages Act.
The Industrial Disputes Act, 1947 also does not seem to support the act of an employer freezing the salary of employees merely on the ground of economic crisis. If we read the provisio to section 25 FFF of the ID Act while dealing with compensation payable to employees who are retrenched due to closure of undertaking due to unavoidable reasons beyond the control of the management/ employer, financial losses or crisis is not taken as maintainable reason. Similarly, while dealing with waiver of damages payable by the employer for non remittances of EPF dues in time, no excuse is given for reason of financial crisis.
As such I beleive that freezing of salary due to economic crisis shall not be permitted in law. Certainly, due to good industrial relations, employees may agree for a deduction but if any one objects, the employer cannot proceed with it.
Regards,
Madhu.T.K
From India, Kannur
Dear Sowmya,
I did not get you. You were referring to some "separate letter indicating compensation (revised downwards)". Can you please explain it in detail? I am an old man, rather traditional or conventional HR man (Personnel Management of the past) and therefore, I am not equipped with many of the new theories developed and implemented by new generation HRs, like CTC, showing employer's contribution to PF as part of salary, showing gratuity which falls due after 5 years of service and at the rate of salary applicable at the time of leaving service at least after 5 years etc. With my experience over 20 years in Personnel Management I state only in relation to Labour Laws and when ever I face with a situation I just refer to what are provided in the relevant Acts and not the theories of HR. In practical HR, I beleive that decisions should vary from situation to situation.
What I have noted are my apprehensions about the matter in line with labour enactments in India. If you read my sentences " I beleive that freezing of salary due to economic crisis shall not be permitted in law". I have also quoted that "due to good industrial relations, employees may agree for a deduction". Here you have to play your lead role to convince the employees. Are you ready to sacrifice your pay finding that India is in trouble? I am not. When no government employee ( who are expected to show more concern over any economic crisis) is willing to grant permission for salary freeze, why should others in the private sector alone?
Regards,
Madhu.T.K
From India, Kannur
I did not get you. You were referring to some "separate letter indicating compensation (revised downwards)". Can you please explain it in detail? I am an old man, rather traditional or conventional HR man (Personnel Management of the past) and therefore, I am not equipped with many of the new theories developed and implemented by new generation HRs, like CTC, showing employer's contribution to PF as part of salary, showing gratuity which falls due after 5 years of service and at the rate of salary applicable at the time of leaving service at least after 5 years etc. With my experience over 20 years in Personnel Management I state only in relation to Labour Laws and when ever I face with a situation I just refer to what are provided in the relevant Acts and not the theories of HR. In practical HR, I beleive that decisions should vary from situation to situation.
What I have noted are my apprehensions about the matter in line with labour enactments in India. If you read my sentences " I beleive that freezing of salary due to economic crisis shall not be permitted in law". I have also quoted that "due to good industrial relations, employees may agree for a deduction". Here you have to play your lead role to convince the employees. Are you ready to sacrifice your pay finding that India is in trouble? I am not. When no government employee ( who are expected to show more concern over any economic crisis) is willing to grant permission for salary freeze, why should others in the private sector alone?
Regards,
Madhu.T.K
From India, Kannur
First of First we have to see applicability of payment of wages act, it is applicable to all employees employed in the commercial establishments, factories etc. who are getting Rs.6500/- or less as their monthly salary, if the question pertain to those employees?
Commenting on Sowmya's Answer, you can lower the salary by cutting on perks and other benefits, but then u have to revise the terms of employment and you have to declare that to employee by notification about the reduction in salary components on the discretion of employee to accept it or leave the job.
From India, Delhi
Commenting on Sowmya's Answer, you can lower the salary by cutting on perks and other benefits, but then u have to revise the terms of employment and you have to declare that to employee by notification about the reduction in salary components on the discretion of employee to accept it or leave the job.
From India, Delhi
Further, there is no law which makes freezing salary or not disbursing salary as lawful activity, the employer cannt freeze the salary of the employee it is totally against the intention of legislations which provides for the benefits of the labour.
Further when we talk about the management and employees of that cadre on whom most of the labour laws are not applicable, those are govern by shops and commercial establishment acts of respective states, therein also no provision regarding 'salary freeze' is mentioned. So the very concept of salary freeze is illegal.
Further, the employer cannot deduct anything from PF and Gratuity which are the compulsory components of the Salary given at prescribed percentage of the salary.
Last of last I would only say that if company is facing such a crises then the answer is reduce manpower or close the shop and sit at home.
From India, Delhi
Further when we talk about the management and employees of that cadre on whom most of the labour laws are not applicable, those are govern by shops and commercial establishment acts of respective states, therein also no provision regarding 'salary freeze' is mentioned. So the very concept of salary freeze is illegal.
Further, the employer cannot deduct anything from PF and Gratuity which are the compulsory components of the Salary given at prescribed percentage of the salary.
Last of last I would only say that if company is facing such a crises then the answer is reduce manpower or close the shop and sit at home.
From India, Delhi
Dear Members,
I also totally agree with Mr Madhu regarding the veiws of freezing the salary. No law will say that the salary can be freezen or reduce it. What is meant by seperate letter? , as per Somya. If you are freezing the salary, it means you are deviating the law.
Even in PF Act it says that no contribution should be reduced , if the contribution is reduced it means that prortionately the salary or wage is decreasd.
I too posted some comments and views on Payment of Gratuity Act, 1972. I also mentioned in the comments that as a responsible HR personnel, they should not misguide the management regarding the fixation of CTC the gratuity component should be part of CTC as it is payable only after five years. It means the we can't include. Otherwise, it should be paid proportionately which is not possibel.
I request Mr Madhu to contribute such views and comments to the forum to explore the subject.
M Srinivas
Asst Manager - HR
Ramky Group of Companies
Hyderabad
From India, Hyderabad
I also totally agree with Mr Madhu regarding the veiws of freezing the salary. No law will say that the salary can be freezen or reduce it. What is meant by seperate letter? , as per Somya. If you are freezing the salary, it means you are deviating the law.
Even in PF Act it says that no contribution should be reduced , if the contribution is reduced it means that prortionately the salary or wage is decreasd.
I too posted some comments and views on Payment of Gratuity Act, 1972. I also mentioned in the comments that as a responsible HR personnel, they should not misguide the management regarding the fixation of CTC the gratuity component should be part of CTC as it is payable only after five years. It means the we can't include. Otherwise, it should be paid proportionately which is not possibel.
I request Mr Madhu to contribute such views and comments to the forum to explore the subject.
M Srinivas
Asst Manager - HR
Ramky Group of Companies
Hyderabad
From India, Hyderabad
I agree totally with Mr T.K Madhu. But Pay freeze as I understand it is that salary is frozen and no further increment will not be forthcoming. In the absence of any such prior commitment on the part of the employer, the employer is under no obligation to give a hike in salary, unless otherwise salary is pegged to the minimum wages which has a DA component.
Downward revision of salary about which the present discussion revolves, can not be made unless otherwise the employees agree to co-operate. The views of Mr Madhu is on the point and in case the "Separate compensation letter" is challenged in a court of law, the verdict will be based on the statutory provisions as interpreted by the judiciary.
Patrick Ryan
From India, Madras
Downward revision of salary about which the present discussion revolves, can not be made unless otherwise the employees agree to co-operate. The views of Mr Madhu is on the point and in case the "Separate compensation letter" is challenged in a court of law, the verdict will be based on the statutory provisions as interpreted by the judiciary.
Patrick Ryan
From India, Madras
Dear All,
Thank you so much for your contributions, its much helpful even though the comments/views are diverse.
Let me further add, especially in light of Patrick's comment. The fixed salary components are: Basic, HRA, City Compensatory Allowance (CCA), Travel Allowance & Medical Allowance.
And as righly intepreted by Patrick salary freeze meaning no incremnets in the forthcoming year; will the issue be still be intepreted illegal considering there is no DA?
Pete
From India, Mumbai
Thank you so much for your contributions, its much helpful even though the comments/views are diverse.
Let me further add, especially in light of Patrick's comment. The fixed salary components are: Basic, HRA, City Compensatory Allowance (CCA), Travel Allowance & Medical Allowance.
And as righly intepreted by Patrick salary freeze meaning no incremnets in the forthcoming year; will the issue be still be intepreted illegal considering there is no DA?
Pete
From India, Mumbai
I am sorry, I interpreted the subject in a different way. Yes, the interpretation of Mr. Patrick is correct. Thanks a lot for letting me correct.
Now, when come to freezing of increments also, if the increment is shown in the pay scale ( for example a scale of 5500- 150- 6100-200-6900-250-7900) it is implied that the employee gets the increment every year at the prescribed rate. Normally, stoppage of increment will be initiated as a measure of punishment. However, any additional increment on the basis of performance is not a right of employee and as such the same can be withheld for the time being. At the same time, if there exists no scale of pay, the company can very well go for a stoppage of increment in view of an economic depression. As pointed out earlier also, the attitude of employees and the trade unions which lead them will be a determining factor in any policy decision.
Regards,
Madhu.T.K
From India, Kannur
Now, when come to freezing of increments also, if the increment is shown in the pay scale ( for example a scale of 5500- 150- 6100-200-6900-250-7900) it is implied that the employee gets the increment every year at the prescribed rate. Normally, stoppage of increment will be initiated as a measure of punishment. However, any additional increment on the basis of performance is not a right of employee and as such the same can be withheld for the time being. At the same time, if there exists no scale of pay, the company can very well go for a stoppage of increment in view of an economic depression. As pointed out earlier also, the attitude of employees and the trade unions which lead them will be a determining factor in any policy decision.
Regards,
Madhu.T.K
From India, Kannur
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