Retrenchment in India (Mumbai) - minimum severance according to IDA - CiteHR
Saswatabanerjee
Partner - Risk Management
Rdsyadav
Educator, Management Consultant & Trainer
Kumaran Praveen
Hr-executive
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I take care of HR for a small organisation and I am based in Malaysia . We have a branch in India which will be closing down soon. We only have about 3 employees there. Can someone please advice me on the procedures and laws that I should be aware of in India for retrenchment. The employees are professionals and only 1 person might be retrenched first. Should I inform any government authority just for 1 person?

The minimum severance according to IDA is 15 days for every year of service (completed). how do I calculate the 15 days? is it 15/number of days in a month 30? May I also know how is daily rate calculated. His notice period is 3 months, do we need to pay on top of this 3 months?

According to Industrial Dispute Act-1947

If you going to retrench an employee than you have to give one month notice in case of you employing more than 50 but less than 100 workers but in case of you employing more than 100 workers than they have to 3 month notice by stating the reason for retrenchment.

If in case you want to retrench your employee soon than you have to pay in lieu of notice period in both the case. If your organization employing more than 50 but less than 100 workers than you have to inform the appropriate authority (Inspector/Ass.Commissioner of labour.ect) about the retrenchment or If you employing more than 100 workers than you have to get prior permission from appropriate authority.

Retrenchment compensation = (15 days average wages) x (No. of years of service)

Retrenchment compensation shall be computed at the rate of fifteen days average wages for each completed year of service.

You get daily rate of wages by diving wages by no of days of working.

Dear Mr Thumbs Up,
Thank you so much for your advice. It's very helpful. If I understand correctly
1. Since it is only 1 employee and the other 2 later, we do not have to inform or get permission from any authority? IF we must inform or get permission can you advice me the website or which authority.
2. We will be giving 3 months notice but the person stays till the 3 months, we still have to pay the severance payment?
3.IF the severance is to be paid the calculation is for full completed years. Which means that if the person works half of a year, that is not calculated for that year?
4. Calculation of wages - We work from Monday - Friday . working day is considered 5 days a week,. Can I just use 20 days instead of calculating for the month? some months have holidays?

Hi,
If any establishment employing less than 50 workers than ID Act-1947 Chapter IX which talks about lay-off, retrenchment and closure will not apply so there is no need to serve notice period and compensation.
With Regards
Mr.Thumbs Up

Thanks again Mr Thumbs Up,
Are you saying we do not have to call it retrenchment? What do I call it then? Can you please advice me on what is the procedure then? we are closing down, and retrenching 1 person for now.

Alright that is understood. Do I call it retrenchment? compensation part is fine. We only have 3 employees and this person is an Office Manager. Do Inform the authorities? YOurs sincerely JA2012
Since this is a small company, with only 3 people, you do not need government approval for retrenchment or closure.
You can inform the employee that you will be closing the business. For that, you can ask the employee or resign, serve notice period, take his settlement and leave. You do not need to pay retrenchment compensation. In alternate you can relieve him immediately by paying him the notice pay and full and final settlement of his dues.
If he does not resign, you can terminate his services. In that case, as per your appointment letter again you need to pay his notice pay.
If you are giving retrenchment compensation more than 3 months notice pay then you don't need to pay notice pay in addition. If retrenchment compensation is lower than notice pay, you will need to give the notice pay instead. But since IDA section applies for 50 workers and above, no such payment is required.

A person who is a manager is not covered under Industrial Dispute act as he is not a worker.
So for that person you just need to follow the notice period under the appointment letter.
However, he must be actually a manager, not an ordinary worker / staff just designated as manager. Meaning he must be doing managerial duties like supervisory functions, approval of leaves, deciding work allocation.

In this instant case the retrenchment is governed by sec 25F of ID Act for which number of workmen is not a criteria at all.The 50 workmen criteria is for sec 25C to 25 E.As per the Sec 25 F ,if a workmen with one year or more service is to be retrenched he shall be given one months notice or pay ,and be paid compensation @ 15 days per year of service.A notice to the prescribed authority also should be given.If the employee is not a workmen termination depends on terms of appointment and state's law on shops and commercial establishment Act.
Dear JA2012,

1) Provision of ID Act 1947 is not applicable being number is just 3 and secondly he is not workman.

2) As such you want to terminate services of Manager , who is not at all beneficiary under Act.

3) Confusion started from "Retrenchment" word you wrote. It is to be called simply "termination of services."

4) The termination clause must be there in the appointment letters and only provisions / clauses of Appointment Letter shall be binding to parties .

5) If it is mentioned 3/ 1 month(s) written in his appointment letter, pay 3/1 months' salary as notice pay and accept his resignation or in other situation, if he refuses to resign willingly, terminate him , send termination letter along with a DD/ cheque towards all dues including notice pay by Speed Post.

6) Please send me his Appointment letter copy for final careful examination and making a termination letter draft for you.

Regds,

RDS Yadav

Director, Future Instt. of management and Technology

Labour Law Adviser



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