Running a business needs lots of money. A substantial amount of earning is spent on the salaries of the employees. A business often goes through financial turmoil, leading to a situation where the employer finds it very difficult to pay the salary of the employees. This is often the result of reduction in sale, fierce competition and other factors. The situation sometimes becomes so difficult that the employer finds no other alternative but to reduce the salary of its employees in order to keep the business running.
Now, can an employer reduce the salary of its employees under any circumstances? This is definitely a tricky question. The Industrial Disputes Act, 1947 allows change in the service conditions of a workman by way of giving notice of change. The changes can be made in relation to the matters mentioned in the fourth schedule of the Act, under which ‘wages’ also falls.
Moreover, wages of an employee can be directly reduced as a result of settlement or an award passed by a competent court. As an employer, one has every right to reduce the salary when the employer is under the burden of financial hardship and unable to pay its employees the existing wages. However, under no circumstances, one can reduce the wages below the prescribed ceiling of wages fixed by the Minimum Wages Act, 1948 even if the employer is finding it impossible to pay the wages and continue with the business further.