There is a government directive against salary cuts in private companies — but can they be stopped?

• The Indian government mandated that commercial establishments must pay wages without deductions.
  
• However, several companies already implemented pay cuts to keep up with operational costs.
  
• Rituparna Chakraborty, EVP & co-founder at TeamLease Services told Business Insider that in all possibilities, “the senior officials shall bear more of the brunt than others”.
  
• There is an extent to which industry can fund unemployment insurance, she said.

The Indian government mandated that all commercial establishments must pay wages without deductions. However, several companies already implemented pay cuts to keep up with operational costs when businesses are closed.

As per directives of the Ministry of Home Affairs (MHA), “all the employees, be it in the industry or in the shops and commercial establishments, shall make payment of wages, on the due date, without any deduction, for the period their establishments are under closure during the lockdown.”

‘Senior officials will possibly bear the brunt of salary cuts’

But the reality is far from that. A recent survey of CEOs, that included over 50 Indian startups, shows that one in four startups in India already announced pay cuts. And, a third of them are considering doing so. Goibibo and redBus also slashed employee salaries.

Rituparna Chakraborty, EVP & co-founder at TeamLease Services says that organisations will implement a ‘balanced approach’ while deciding on who will get impacted by the move to cut wages. “In all possibilities, the senior officials shall bear more of the brunt than others,” she said.

Meanwhile, startups like Droom, MakeMyTrip (MMT), ixigo axed jobs too amid the lockdown. Founder Deep Kalra also told Business Today that pay cuts would happen across top and managerial levels at MMT. Travel, tourism, aviation and hospitality are likely to be worst hit.

On the other hand, airlines, which are the worst hit due to the Coronavirus pandemic, have trimmed employee salaries by up to 30% -- including their chairmen. However a few large groups like Tatas announced that all their working - including contractual employees - will be paid in full.

Can the government really intervene?

Chakraborty said that the government policies under the Industrial Disputes Act 1947 covers employees (and apprentices) working at salaries less than ₹15,000 per month. It however excludes those employed mainly in a managerial or administrative capacity.

Considering that, “the scope of payment of wages shall extend to regular, casual and contractual workers. To that extent, the government has authority to intervene in employment practiced by the private firms. However any action taken by the private firms which is in line with the provisions available to them -- the necessary authorities cannot intervene,” Chakraborty explained.

In most cases, lowest paid employees have been shielded from pay cuts.

Do businesses have other options?

A few organisations can safeguard their employees from bearing the brunt of the pandemic. But even those which can, will not be able to take the hit for a long time. Since there is uncertainty around Covid-19 and its possible impact, more pay cuts and job cuts are in the offing.

“Some organisations can give away the salaries if they have deeper pockets. However the question is, for how long and are they willing? There is an extent to which industry can fund unemployment insurance. In the long run, organisations cannot afford to bear the burden of unemployment insurance fully,” Chakraborty added.

The nationwide lockdown has already taken a toll on government and private companies alike. If it continues, cash conservation will be a top concern for organisations.

“If India's is unable to flatten the curve of the spreading the disease it is a possible eventuality that companies will cut salaries further. However, organisations would do their best to avoid it till it becomes absolutely imperative,” says Chakraborty.

Even state government employees have had to forfeit salaries in view of the pandemic. On April 9, Maharashtra government said that it will cut salaries of all its MLAs by 30% for the entire year, starting this month.

Earlier, Telangana, Andhra Pradesh and Rajasthan have announced deferment of payment of full salaries to the chief minister, officers and other state employees, owing to the falling revenues and increased costs of healthcare.

See also:
Maharashtra to cut salaries of all its MLAs by 30% for the entire year

Ritesh Agarwal to take a 100% pay cut, OYO sets up a welfare fund for Corona-hit hotel partners