Dear All, I am working in the HR department of an MSME company. My MD wants to impose fine on employees for negligence & nonadherence to company rules. Please guide me is it legally valid to impose fines in monetary terms.
From India, Mohali
Dear Saloni,

Yes, your company can impose fines and penalties for the violation of the company's rules and regulations or for being negligent at the work. However, please note the following:

a) Imposition of fine or penalty is a punishment. The objective of the punishment is to correct the behaviour of the employee. Therefore, please make sure that the amount of fine or penalty should be a fraction of the loss caused to the company.

b) The aim of the imposition of the fine or penalty should not be the recovery of the losses caused to the company.

c) Before raising the penalty, identify the causes of the negligence. Many times, the system is at fault but the blame is assigned to the people. Examples of this are:

i) Faulty work output because of the non-calibration of the tools or the instruments

ii) Faulty work output as the machines are not maintained properly

iii) Faulty work output because of the defective raw material

d) Only top-most management is authorised to levy the penalty. As far as possible it should not be delegated to the lower level.

e) As stated earlier, the objective of levying the penalty should be toward correction of the behaviour. What if the behaviour does not improve in spite of imposing the penalty? In that case, the management is free to take harder disciplinary action. However, public reprimand of the defaulting worker should be avoided.

f) Please check the provisions of Factory Act or Shops and Establishment Act of your state as applicable regarding the imposition of penalties and fines. In some states, the requirement is to deposit the amount to the Labour Welfare Fund (LWF). The company cannot retain the amount with them. Maintain the penalty register under the provisions of either act.

g) Raise a separate debit note for each case. Issue the debit note to the worker and then only deduct the amount from the salary. If the worker deposits the amount voluntarily then deduction through salary is not required. However, the entry in the penalty register has to be made.

f) Imposition of fine or penalty is ok but beyond a point, it does not work. Negligence at the work shows either the worker is not adequately motivated or unfit to work. Therefore, this factor also needs to be addressed. Possibly you may have to review your recruitment practices.


Dinesh Divekar

From India, Bangalore
Dear Saloni,
Of course an employer can impose fine on the employees as a measure of correction. But, the employer should get the approval of the specified authority under the Payment of Wages Act,1936 of such acts of employees falling under the PW Act,1936 warranting imposition of fines. Better, go through sec.8 of the PW Act,1936. Same is the position u/s 19 of the Code on Wages,2019 which is going to come into force probably on April.01, 2021.

From India, Salem

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