Labour Law & Hr Consultant
+1 Other

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Can anyone help me regarding severance pay rule in India. Is it mandatory for an employer to pay severance pay to employee when they are closing their business and ask their employees to leave from their end.
Is there any law for that.
My query is for a company which comes under shop & establishment ( Maharashtra state ) .

From India, Lucknow
Severance Pay refers to the compensation payable to the employee by the employer in the event of discharge from employment at the instance of the employer. Under the Industrial Disputes Act,1947 it is called as retrenchment compensation. It is computed on the basis of the length of service rendered and last drawn wages/salary. It is 15 days average wages for every year of completed service under the same employer.
It is mandatory that the employee likely to be retrenched must be served with one month's notice or one month's pay in lieu thereof and paid retrenchment compensation thus calculated above.

From India, Salem
Dear sir, You have not disclosed what is strength of your employees and specially workman category and nature of business etc. to respond you correctly on this point. Closure of any Industrial establishment is not permitted and hence not possible to terminate with notice pay. Under Uttar Pradesh Indl.Disputes Act, there are specific provisions for 'Closure' and "Retrenchment" which is strictly applicable to workmen category . You may adopt some strategy to remove only Staff Management with compliance of appointment letter for those who do not fall in workman category.If you terminate any workman without obtaining permission for Closure, your action will be illegal and punishable also.
RDS Yadav
Future Instt. of Management and Technology
Labour Law Adviser


From India, New Delhi
You can be dealt with and under below provisions -
Definition of Retrenchment (Section 2(oo))-
“Retrenchment” means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but doesn't include-
(a) Voluntary retirement of the workman; or
(b) Retirement of the workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf; or [(bb) termination of the service of the workman as a result of the on-renewal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation in that behalf contained therein; or]
(c) Termination of the service of a workman on the ground of continued ill-health;]
Here at our scenario retrenchment would be appropriate course –
Payment terms for retrenchment compensation are as under –
Section 25N also lays down the conditions precedent to retrenchment -
1) No workman employed in any industrial establishment to which this Chapter applies, who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until,-
(a) the workman has been given three months notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice;
Section 25 F defines the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days average pay [for every completed year of continuous service] or any part thereof in excess of six months;

From India, Pune
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