Asso.prof.(commerce & Management)

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Ours is a manufacturing (textile) unit setup and running for over a year. Ours doesn't come under PF or any other acts as we employ less than 20 members. We have a difficulty setting up a formal employment contract yet. I have elaborated by questions below. Can someone with knowledge on this throw some light:
1. Some staffs expect bonus (one month salary) and a settlement (for 15 to 30 days salary) to be paid every year as they were paid so by their previous employers. I checked there are many employers that pay bonus and other final settlements (15 to 30 day salary, leave encashment etc) every year by Diwali thereby settling every dues with that employee and start afresh after factory opens after Diwali. (I assume this one is like a fixed one year contract and issue a new contract every year). Unlike where employees are settled when they leave their jobs, this system of full and final settlement every year confuses me. Is this method of employee (permanent or contract) compensation valid or legal?
2. Some say 15 days of salary (in above said scenario) is paid as gratuity every year. Can employers chose to pay gratuity every year instead of paying as whole at the end of employment irrespective of they completed 5 years or not. (For contract employees)

From India, Coimbatore
Dear Deepak,
Textile business is something unique,especially in TN. There both organised & unorganised, piece rate & time rate work is going on for ages. I hope you know the nature better. Such conditions are prevailing in Beedi industry as well. Thousands of Powerlooms are being operated in around the residences of those involved. Some obtain spun yarn from owners and supply finished cloth against piece rates. Though such operations are not in the nature of 'industry' or 'factory' or 'shops', sure, there some manufacturing activities are going on. In this scenario there exists hiring workers for short periods without proper legal pay packages. They are settled now and then as their frequency of mobility usually for shortest durations. Some are settled month to month or even piece to piece. In these conditions prescribing an acceptable common model of remuneration would always be arbitrary. Arguably, I would say the CTC concept now common in IT/ITES sector should have roots in this industry. No one could think of either PF or Gratuity or Leave encashment or even bonus. All these payouts, much would depend on the bargaining capacity and skills of the employee concerned rather than legal parameters as the settlement of benefits are mutually agreed on one to one basis depending on skill and workload turned out by individuals. As you said there cannot be legal angle as the parameters governing the conditions are limited by no.of employees and their tenure. And if you say they have been employed for the whole year and they are to be settled year on year basis, then 15days wages should be good enough so far as bonus & gratuity aspects are considered. But w.r.t. leave it's anybody's guess. And if you are willing to pay @ 15 days salary for gratuity, you'll be doing great thing, for even < 5 yrs service, we see MNCs and firms in organised sector bunk. All said and done, if you are toeing the practice followed in around your place/in your sector that could solve your predicament.

From India, Bangalore
Dear Kumar,
Thanks for your insights. As you said, textile business is mostly an unorganized sector here (except for major factories that employ thousands of workers). So we have no choice but to follow the local practices irrespective of the legality surrounding it. (Because it has become a norm, if we don't follow it, we would end up not having enough workforce). I am not sure why this sector has been allowed to work unorganized still. That is totally a different a different area of discussion I feel. Anyways in this case, can i draft an employee contract (like 1 year contract) and settle the dues every year and sign with them a new contract every year. Though we have less than 20 staffs, I am trying to make salary, wages, settlements etc as organized as possible.

From India, Coimbatore
Dear Deepak,
Fine, You are the better judge on the given situation as we have no means to face the compulsions what you are facing, the ground reality. Pl.read the attached material on the history of Bonus in India. Textile business, especially cotton based, as you know centered around families and employing family members. In this scenario not much of investment is needed and what the skills and equipment passed on from ages are getting deployed with minimum modifications in the process. That's the reason mainly this sector remains within the four walls of families. Having known about fate of those days' big giants who were fully cotton based industry like Binny mills, B & C mills, numerous mills which were running during 50-70s later absorbed in NTC all over the country and became sick and closed I am aware of their difficulties. I am not competent to prescribe any slabs or rates due to inherent problems & uniqueness and any attempt to impose the provisions of various acts, I afraid only cripple the industry which serves bread winner to lakhs of people male & female alike living in rural & semi-urban areas. All the best friend.

From India, Bangalore
Dear Kumar, Well said. Thanks a lot for your Inputs!! :) Regards, Deepak
From India, Coimbatore
I missed the attachment. PFA the history of bonus in India for your info. Regards.
From India, Bangalore

Attached Files
File Type: docx HISTORY OF BONUS PAYMENT IN INDIA.docx (25.6 KB, 7 views)

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