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Can we charge penalties from employees? And if yes, which format to use for the penalization letters?
From India, Raipur
Dinesh Divekar

Dear Amy,

If the employee commits misconduct and because of the misconduct, if the company incurs a loss, then companies are authorised to impose fines and penalties against the employees. Nevertheless, the top management considers the penalisation a trigger, and they are more than happy to press this trigger.

Before the imposition of the fines and penalty, consider the following points:

a) Who discovered the misconduct, how was it discovered? Is it the fault of the HOD, but the subordinate has been made a scapegoat?

b) Have you issued a written copy of the Job Description (JD) to the employee? Was the employee assigned with the work that was out of JD? If yes, then why the JD was not updated? If it was updated, was it communicated to the employee? Did you obtain the signature of the employee on the changed JD?

c) Is the employee competent to perform the task? Does he/she have adequate tools, instruments, machines to perform his/her task? If yes, then are these calibrated or working properly?

d) If the wrongdoing by the employee resulted in the loss to the company, what was the role of the HOD? What preventive steps he/she had taken to avoid the wrongdoing?

e) Are their written instructions or SOPs to perform the tasks? If yes, then have been communicated to the employee? If these are communicated, then how were these communicated? Do you have a signed copy?

f) Was the employee given proper training to perform the task? If yes, then do you have records of the training?

g) The imposition of the penalty is a punishment. Before the punishment, the company needs to conduct a domestic enquiry. Have you conducted the domestic enquiry to investigate why the company incurred the loss? Was the focus of the enquiry on the person or the incident?

h) Is it that the company had incurred such losses because of the wrongdoing by the employee earlier also, but now all of a sudden the company wanted to take stringent action against the employee?

i) Before awarding the punishment of the imposition fine and penalty, did the authorities concerned educate themselves on the percentage of the cost that can be recovered from the employee?

Position of the labour law: - This point is out of the purview of the draft of the letter that you have asked for. Yet, it is pertinent to ask for it. The fines and penalties collected should be deposited in the Labour Welfare Fund of your state? Have you educated yourself of the statutory provisions related to the deduction?

There are so many questions associated with your post.

Final Comments: - Providing the draft of the letter is easy. However, the members of this forum are outsiders, and unless we know the facts of the case, it would not be prudent on our part to help you. We are the neutral parties, and we would like to treat the employee as well as your company equally. It is the duty of the senior members of this forum to ensure that by fulfilling the requirements of the fellow member, an employee of the member's company is not meted out injustice.


Dinesh Divekar

From India, Bangalore

Dear Friends,


I appreciate the valid & pertinent response of Mr Divekar. Just adding one point from my side, in Payment of Wages Act, Minimum Wages Act & Payment of Gratuity Act had provisions relating to imposition of fines on employees, I think in the new Labour Codes also the provisions have been maintained.

Warm Regards

Bharat Gera
HR Consultant

From India, Thane

At the current time, under Payment of Wages Act, a fine or penalty can be imposed only on specific offences that are listed and disclosed to the employees and which are also approved by the appropriate authority (in most cases, Labour Commissioner)

So it is not actually possible to impose a fine or penalty in a normal case.

You can recover cost of damages, salary for the time which he had signed in but was not at place of work without authorisation (mostly considered for an impromptu strike), but that is not applicable to women workers.

In any case, such imposition of penalties generally results in Industrial Relations problems so ensure that the management has give it adequate though before they do anything.

From India, Mumbai
Nagarkar Vinayak L

Dear Colleague,

It is inherent right of an employer to impose an appropriate punishment for proved misconducts in domestic enquiry held in accordance with the principles of natural justice.

Penalty by way of fine or
similar monetary punishment will be appropriate if the misconduct proved has caused pecuniary loss to the company and the same bears reasonable proportion to the extent of the such loss.

If the fine imposed on an employee belongs to a 'workman' category, then provisions of the State Labour Welfare Fund Act may be attracted.


Vinayak Nagarkar
HR and Employee Relations Consultant

From India, Mumbai
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