Umakanthan53
Labour Law & Hr Consultant
Madhu.T.K
Industrial Relations And Labour Laws

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Team, Severance pay calculation: if employee having 3.6 years’ service and having 4,50,000 salary per annum so how we calculate severance pay? OR if employee having 10 years’ service and having 8,60,000 salary per annum so how we calculate severance pay?
We are giving two months’ notice period to employee along with leave encashment(gross pay for annual leave’s).

From India, Hyderabad
I believe you mean retrenchment compensation and not lay off compensation as the caption suggests.
Retrenchment compensation is average wages of three months immediately preceding the date of retrenchment. It is 15 days wages for every year of service. A fraction of service of year more than six months shall be rounded off a year and less than 6 months ignored. Hence an employee having 3 years and six months and one day service will get compensation equal to 4 years' service. Calculate the compensation based on last drawn monthly salary and not annual salary or CTC

From India, Kannur
I fully agree with Mr.Madhu. Perhaps Venkatesh used the term "lay off" only in the sense of permanent termination of employment of a group of employees for business reasons.
From India, Salem
Sir, Can i have any calculation example for 10 years service.
From India, Hyderabad
Anonymous
what is the diffrence b/w severance cost and retrenchment compensation?
From India, Hyderabad
Regarding calculation of retrenchment compensation u/s 25-F, Venkatesh, you have to see the definition of the term " average pay " u/s 2(aaa) of the IDA,1947. In case of monthly paid workmen, the average pay shall be the average of the wages payable in three complete calendar months. The Supreme Court has held in Guru Jambeshwar University, Hissar v. Dharam Pal [ 2007 LLR 297 (SC) ] that retrenchment compensation shall be equivalent to 15 days 'average pay' of 30 and not 26 days. Therefore, the formula for calculation of retrenchment compensation shall be :

(Monthly Gross wages divided by 30) X 15 X Total no of completed years of service.

Regarding the query by the anonymous friend, severance cost is the total cost of separation of the employee from the service of the organization in which retrenchment compensation is one among the components of terminal benefits like gratuity etc.

From India, Salem
Severance Pay means retrenchment compensation only. Gratuity is different and it is not available to all employees but restricted to those who are leaving the organisation after rendering at least five years of service. Severance pay or retrenchment compensation is available only to workmen and no manager needs to be paid this compensation whereas gratuity is available to all employees irrespective of their roles and functions.
Both retrenchment compensation and gratuity amount to 15 days wages for very completed year of service. While calculating retrenchment compensation we take average of three months salary and the monthly pay is divided by 30 to get salary for one day whereas amount of gratuity is calculated by dividing the monthly salary by 26.

From India, Kannur
A severance package is pay and benefits employees may be entitled to receive when they leave employment at a company unwillfull,in general, severance pay is usually based on length of employment. For example, it could be a week's pay for every year of service or any other amount determined by the employer. When provided, it is given as either a lump sum or paid over a number of weeks.To know more -https://rplg.co/dad65130
From India, Bengaluru
Rama-Karnam, from where did you get the information about severance pay? Is it a policy of a particular company or as per any legislation? If it is as per legislation, I would say that you are wrong. If you were referring to a particular company's policy with regard to severance pay, it can be enforced provided the employee involved was a manager. But in respect of employees who has no reportee under him who would come under the purview of Industrial Disputes Act you cannot fix a compensation lesser than 15 days wages for each year of service.
From India, Kannur
Madhu sir and Umakanthan Sir,
These are my very specific queries in this space :
i. Under the ID Act Chapter V-A and V-B, it is clearly stated that it is applicable for factory, mine and plantation. Does it mean employees of IT and Service industry are not eligible for retrenchment compensation / severance package ?
ii. Are those companies exempted under ID act?
iii. If yes, can employees of those companies who has no reportee, can raise dispute Under 2(k) ?

From India, Kolkata

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