Transitioning to Yearly Appraisals: Are There Legal Risks with Delayed Payouts?

In our organization, there was a system of six-monthly appraisals. Now, we want to move towards yearly appraisals which will happen in September every year. This April, since we do not want eligible people to miss out on increments, we will be appraising them, and a letter of increment will be given to them, but the actual payout will happen only in September (it will be mentioned in the letter).

My concern is, will there be any legal hassle (under labor laws) if we declare increments in April and payout in September with the knowledge of employees?

Hi Priyanka,

An increment is a part of the rewards and recognition system, which is at the discretion of the employer. There is no specific law governing this increase. You can proceed by informing your employees.

Dear Priyanka,

First of all, make the necessary changes in the company's HR policies. It will be official. Handing over the increment letters in the month of April 2009 and it will be effective from September won't be feasible. Employees might take advantage of these increment letters and negotiate with other companies for new jobs.

One option will be to hand out the increment letters and effective dates from April 2009. The second option will be to declare the increments and effective dates will be from September 2009. There is no law for the increment and appraisal system.

Regards,

Nimish Joshi
9969526325

Dear Priyanka,

What would be the logic to declare in April but implement in September? In September, are you going to give arrears from post-April? I also feel dissatisfaction would increase, and people would leave post-September after receiving their increments. Your situation (need more details) requires a strategic approach to ensure employee satisfaction.

Hi, In our organization, there was a system of 6 monthly appraisals. Now we want to move towards yearly appraisals, which will happen in September every year. This April, since we do not want eligible people to miss out on increments, we will be appraising them, and the letter of increment will be given to them, but the actual payout will happen only in September 09 (it will be mentioned in the letter).

My concern is, will there be any legal hassle (under labor laws) if we declare increments in April and payout in October with the knowledge of employees?

Regards, Priyanka Upasani 9850750998

The system of increments that your organization proposes to implement is not praiseworthy. In case your organization is planning to pay arrear payments to your employees from 1st April, then it is okay. Otherwise, it would be better to provide letters in the last week of August or the first week of September, mentioning the amount of increments and their effectiveness wef 1st September to avoid dissatisfaction among the employees. However, since the increment and appraisal system does not fall under the purview of any law, your organization can make decisions at its sole discretion.

Regards,
Sivadasan

This April, you are to do the increment for eligible persons and make necessary amendments in your company policy mentioning yearly appraisal and increment every year in September.

Hi Priyanka,

My query is, if you are issuing a letter in April stating that the payout will be done in September, effective from April onwards (i.e., arrears), and an employee leaves after April, would you pay the arrears and process the Full and Final settlement as per the new salary? There could be a legal complication unless you have mentioned a relevant clause in the increment letter.

Regards,
Harshad

It would be advisable to give increments effective from September by informing the employees about the same to prevent any confusions in the query raised by Harshad.

Hi Priyanka,

First of all, let all the employees be informed about the change in the policy and make it very clear that it is a management decision. Secondly, there is no legal or third-party obligation to provide increment letters or payouts as these are all internal company matters.

Regards, Prabha Naidu 099989 46562

Dear Priyanka,

There are two options to this situation:

1. Send a communication in April (or the last week of March) to employees whose increment is due and say that the increment will be given in September, including arrears from April to August. Inform them that the revision will happen once a year henceforth in September.

2. The other option is to send a communication saying that management has decided to do yearly appraisals henceforth, and the same will be done every September. If your management has decided to postpone the increment because of the economic meltdown, you can communicate the same reason so that employees may forgo the salary increment from April to August. Communication should be clear.

Thank you.

Hi Priyanka,

There will be no legal hassle (under labor laws) if you declare increments in April and payout in October with the knowledge of employees. Labor laws do not stipulate or regulate increments; that is solely an employer's prerogative.

It would be advisable to communicate clearly and succinctly with employees about the change in the appraisal period from 6 months to one year and the reasons for it. Initially, it may be a matter of concern to them. Adding a personal touch by organizing a town-hall meeting to address this issue will be helpful. Alternatively, having respective department heads convey a common message to their staff about the change in the appraisal period as advised by HR would also be beneficial.

For the moment, employees will be happy to know that their six-month appraisal tenure will be counted and paid retroactively from April 1, 2009. However, they may question why this will be paid in Oct. '09, and this should be addressed.

Normally, to make such policy changes, HR must provide advance notice uniformly to employees to their reasonable satisfaction, not abruptly or piecemeal.

Be careful with the wording of the increment letters (anything given in writing and duly signed by management holds legal sanctity). If there is a deferment of the increment payable in April 2009, it must be accompanied by good reasons if provided in writing to dispel any message of malafide intentions from management.

It may be prudent to post a notice of "policy supersession/change on Performance Appraisal" on the main bulletin board for employees to read, followed by contact information. Subsequently, provide the increment letter in Sept. '09/Oct. '09. This approach should address concerns and dispel fears of job cuts or attrition, especially given the economic downturn and its repercussions.

Regards,
Priyanka Upasani
9850750998

Hi, Priyanka,

The idea is good to retain talented people. Since you are mentioning in the letter that it will be effective from September, it will not create any legal problems. I have a small suggestion here to avoid other problems:

a) The increment portion can be retained as a retention salary.
b) In case the employee terminates the job in between, such retention salary is not payable.

Trust the above suggestions solve your problem.

Cheers,
Ajay
9986398828

Well, there's no labor law as such because performance management and appraisal are specific to every organization. However, as commented by a few members above, you must define your appraisal process, document it, and communicate it to all employees before implementing it. Keep the process as simple as possible to avoid any confusion. According to me, the best approach is to conduct appraisals in August/September and issue letters in September.

Regards, Niki

Dear Priyanka,

Under the changing market scenario, announcing in that way may not be suitable and acceptable to the employees.

Regards,
Prabu