Anonymous
Also please note the said 5% deduction is not mentioned anywhere in the Appointment letter.

in spite of all your clarification, the deduction is still illegal
From India, Mumbai
nathrao
3103

Financial pressure being exercised to retain employee.No point trying to disguise it as a welfare scheme.
If challenged in a court of law,the employer will find it difficult to justify.
One must find better ways of retaining employees.
Better work atmosphere,friendlier policies and a spirit de corp -so that employee is motivated to stay there and grow,learn and progress,along with the company.
HR can play a proactive role in suggesting schemes which meet with legal requirements and help retain good employees.

From India, Pune
Dear colleague,
The scheme ,under the lure of equal contribution by the employer and payment of simple interest after ten years' compulsory service, is nothing but creating bonded labour of sorts. At the end you only live with unwilling and barely contributing employees.
The forfeiture clause is unjust, one sided and illegal. The scheme violates basic right of Indian citizen of freedom to choose the work and can't bind him under such dubious agreements , though he somehow agrees to sign at the time of joining in full awareness.
Such lopsided schemes protecting only employers' interest at the cost of employee's, not only be condemned as bad employment practice, but should be put to test in the court of law.
Instead of chaining employees with such negative initiative, create positive work culture where the employee not only does not think of leaving the organisation but feels committed to work at his best for company's interest.
Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant

From India, Mumbai
Oh sir
IT IS UNDOUBTEDLY ILLEGAL DEDUCTION . IF THE COMPANY WANTS TO TRAIN EMPLOYEES FOR SAVING THIS IS NOT THE WAY. IT SHOULD NOT BE COMPULSORY.. TO EVERYONE...
THIS COMES UNDER ILLEGAL CHIT FUND RUNNING.. VIOLATIONS OF RBI RULES...
IT CAN BE CHALLENGED IN THE PUBLIC COURT BY ITS EMPLOYEES IN GROUP OR INDIVIDUALLY.
Moreover conditioning before employment is also wrong method of recruitment.. It can be challenged at the time of joining to any local labour dept district office or any public court.
Totally beyond ethics and violation of prescribed deductions of Labour laws. MW act etc

From India, Nellore
A deduction from salary as per mutual agreement is legal. Only thing is the forfeiture clause. If the employee's share is paid without service conditions (minimum service of ten years) with interest there is no illegality in this scheme. You can place a ten years service condition for eligibility for employer's share so long as the same is not reflected in the CTC. You can make it a component of CTC with a condition that it is subject to a continuous service of ten years.
From India, Kannur
Madhu ji,
I will disagree with you on this.
Any deduction not covered under Sec 6 and 7 of payment of wages act is illegal, irrespective of agreement.
Contracting out of a statutory provision is not allowed in Indian Jurisprudence.
If this was not a part of salary, but an additional loyalty scheme, meaning that the employer will give 10% of annual salary for 10 years and interest for anyone who works for 10 years, it would be different, because there is in such a scenario, no deduction but an additional payment promised.

From India, Mumbai
But what is wrong in this kind of arrangement? As already pointed out, if there is no such clause that the employee leaving the organisation before ten years will lose both his share as well as the employer's share, the scheme is not illegal. this is a thrift fund which will get interest also. Obviously, if you complete ten years you will get the employer's share also. A kind of thrift fund scheme was practiced in Kerala Dinesh Beedi Workers' Cooperative Society where the beedi workers contributed a very small amount which they drew on their retirement.

It is true if the employer is to forfeit the employees' share if they do not serve for ten years, then it would attract penal provisions. So long as the system is that on termination of employment the employee's share is paid with interest at prescribed rates, I don't think that there is any issue.

From India, Kannur
The money is not being put into a fund
There is no guarantee the money will ever come to the employee.
and coming back to the basic and first point i made, its not allowed under sec 6 and 7 of payment of wages act

From India, Mumbai
True, but you need not take section 7 as discrete but it shall include all such deductions which are mandated by an agreement between employee and employer. Clause (kk) permits such contribution to fund constituted by the employer also (in addition to the welfare fund of trade unions) so long as the same is for the benefit and welfare of the employees and their families.
Certainly, in this arrangement there is a fund and the amounts deducted from the employee will go to that fund only. Then guarantee as to whether this amount will be paid back to the employees is a question of trust. Even in states where section 4A of the Payment of Gratuity Act which provides for compulsory insurance of gratuity fund is not enforced or notified as made effective you cannot expect that you will be paid statutory gratuity on your leaving the company.
( Section 4A provides that a gratuity fund should be invested in LIC so that payment of employees' gratuity will be guaranteed. But this section applies to such states which notifies it as applicable and there are a lot of states which are yet to notify the date on which section 4A is made effective to the establishments in their respective state. If your state has not notified that gratuity fund should be invested in LIC, then you need only "provide" for gratuity in the statements of accounts. In such provision, there is no cash flow happening and as such if the employer is in a bad shape, obviously, it will be the employees who will lose)

From India, Kannur

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