Facing Recession Layoffs: What Compensation and Notice Period Should HR Provide?

Hello All,

I am working as a Human Resource Leader for a Multinational firm and report to the Global Human Resource Manager in Canada. They have asked me to get details on layoff compensation packages. If we terminate staff due to a recession, what is the compensation package, notice period, and the letter of termination we need to provide? Please help; it's really urgent.

Regards,
Shirley

Shirley,

In our organization, to make the exit amicable, we are requesting employees being laid off to submit their resignations and refraining from giving them the termination letter. Our layoff package includes:

1. Two months' salary
2. EL encashments
3. Any tenure-based bonuses to be paid on a prorated basis, even if tenure is not completed.
4. Gratuity to be paid even if 5 years are not completed (this will be a kind of bonus)
5. Any outstanding loans (if the amount is not huge) will be waived off.

- Payal

Thank you, Payal. Just to give you more details, our total staff strength is 30 employees, which includes 7 support personnel. The appointment letter mentions one month's notice or payment in lieu of notice. We plan to retrench about 8 to 10 employees. Do we still need to pay 2 months' salary? Our company has been in existence for only 15 months. Please advise.

Shirley

Dear,

It is a discussion between you and your staff. But legally, if you want to terminate them, then pay notice pay of one month as per the appointment letter, pay retrenchment compensation i.e., 15 days' salary for every year of service, and other dues like leave encashment, etc.

Thanks,
J. S. Malik

Shirley,

Actually, I was talking about the modus operandi in my company. If your offer letter mentions one month notice or payment in lieu of notice, then you need to pay only one month's salary, not two months. Also, you can help them fine-tune their resumes, provide the consultants' contact information, and assure them that if they secure a job, you will give them a good personal recommendation.

Bitterness may exist, but you should consider how to facilitate an amicable exit.

- Payal

Hi Shirley,

Depending on the notice period mentioned in the appointment letter, you need to pay them the notice period salary and any bonus/performance variable pay, if applicable. Ensure that you are handling this in a way where employees themselves are resigning rather than being asked to leave. Otherwise, it could become a difficult and complex situation. The size of your firm determines which laws are applicable. Therefore, find the easiest way to manage this situation by asking them to resign and leave, and provide them with relieving letters instead of termination letters.

Mr. Sahni, I appreciate your help. Our firm has over 400 employees across the globe, but we have only 30 employees in Mumbai. Do we have a labor law regarding retrenchment due to a recession? Are there any basic requirements we need to comply with?

I am the only local HR representative reporting to Canada. Any help is greatly welcome and appreciated. Thank you.

Shirley

Dear friends,

My opinion is that as per the law, if a company sends an employee on layoff, they have to give 15 days' salary even if production is not taking place. Once the company resumes full production, these employees will be taken back as normal employees.

Am I right? Please clarify.

Kumar

Dear,

It is totally dependent on the company policy. If your organization retrenches employees, in the future, if any requirements or vacancies arise, then you should give priority to retrenched employees. Retrenchment of an employee is possible when the employee has not completed one year of service.

Appa Rao

I agree with Mr. Appa Rao that it depends on the company policy.

In the current scenario, most companies are asking for resignation and providing the gross salary for the notice period mentioned in the appointment letter.

Mradul Bhatnagar

Shirley, I was heading the Legal department of a US MNC in India with more than 35,000 employees globally and 3,500 in India across 11 entities. We had to downsize both bargainable and managerial staff. The handling procedure and compensation package differed for each. For bargainable staff, covered under the laws of the land, full compliance with prevailing statutes is always advisable to ensure safety, health, and avoid future complications. In your case, prima facie, these support staff are protected by their terms of appointment and in any case, you will have to provide them with one month's pay in lieu of notice if you are "retrenching" them immediately. The current trend in engineering industries is to offer 15 days' wages for every year of completed service by the respective staff. If your company has been operational for 15 months, some may not have completed a full year, so you will need to check their eligibility for this retrenchment. As yours is an MNC, setting a good precedent, you can consider providing an additional one or two months' wages as compensation for their past meritorious service. It's unfortunate for both parties that the economic recession has hit. If you have any queries, feel free to reach out to me at abhirutu@rediffmail.com or call at +91 9822394170. Best of luck to you all. Sanjay

Hello All,

I am working as a Human Resource Leader for a Multinational firm and report to the Global Human Resource Manager in Canada. They have asked me to gather details on the layoff compensation package. If we need to terminate staff due to the recession, what is the compensation package, notice period, and termination letter required? Your prompt assistance is greatly appreciated.

Regards, Shirley

Hello,

My suggestion would be to compensate one month salary as Notice pay, as mentioned in the Appointment letter. The additional one month pay can be provided as other components, such as Ex-Gratia or under any other title.

Best regards,
Bastin Fernando

As Mr. Malik said, any pay retrenchment compensation can be considered a must. Additionally, if your company is registered with the employment exchange, you must provide written information about the layoff along with the number of employees affected. An employee can raise labor issues based on this. Otherwise, everything is regular.

Hi Shirley,

We just went through this phase.

The process was simple and went like this:
- The company decided on compensation based on the cadre across all levels.
- Directly talked and explained the company's current scenario clearly.
- Provided 3 months of basic salary plus annual benefits (LTA, encashment).
- Requested these employees to submit their resignation within three days and cleared all their dues.

Now, the point is the amount of compensation:
This depends on the profiles handled, CTC drawn, and the percentage of compensation based on the cadre.
The percentage can vary depending on the type of industry and its current state of affairs.

Most companies provide statutory benefits. However, if you provide some additional benefits, the exit process becomes hassle-free. This gives departing employees some financial relief while they are job hunting, which can sometimes take time.

Regards,

SRD

Hi Shirley,

We just went through this phase.

The process was simple and like this:
- Company decided a compensation cadre-wise across the levels.
- Talked directly and explained the company's present scenario in black and white.
- Gave 3 months of basic pay plus annual benefits (LTA, encashment).
- Requested these employees to submit their resignation within three days and cleared all dues.

Now the point is the amount of compensation:
This depends upon:
- Profiles handled, CTC drawn, % of compensation as per cadre.
- Percentage can vary depending on the type of industry and its present state of affairs.

Statutory benefits are given by most companies. But if you offer some additional benefits, the exit process is hassle-free. This way, the departing employee gets some financial relief while job hunting, which sometimes takes time.

As the number of employees you are looking to lay off is less, money should not be an issue.

Regards,

SRD

If you want to retrench only a few of the employees, then follow the principle of Last In First Out. It will create less bad blood.

Also, check if you can provide outplacement services in related industries. That will be a positive approach.

All,

In the private sector, please adhere to the commitments given and taken as per the offer letter issued. If there are any policies that you have implemented beyond what is stated in the offer letter, make sure to list out all compensation-related benefits, including those payable directly and through the government like PF, in the issued letter.

While a termination letter is not a common practice in India, it is common in other countries.

Regards

Hi Sherly,

Basically, during termination, whatever we have given him in writing in his contract of employment, according to that, we have to pay him as notice period compensation. Just check the appointment letter and suggest the notice period compensation based on that. Along with that, we also need to give the leave encashments.

Regards,
Mahesh

Hi Guys,

You are talking about companies of sizes 30 to 100, but companies of size 1000 are asking the employees to put their papers down with a one-day notice, or else they are terminating them, citing non-performance (There is no law for this). As an HR professional, sometimes we need to make tough decisions as the situation demands. However, with a human touch, we can even help find a job for them through our resources, especially when dealing with 5 to 10 employees, as you mentioned. I am not sure how companies are being affected by this global economy, but everyone feels that now is the right time to reduce the bench to 3 to 4%.

Regards,
Suresh

Bit confusing...question. Your title mentions lay-off and describes the intention for retrenchment. You have to follow Chapter V-A and V-B of the ID Act, whichever is applicable for retrenchment or lay-off, as you deem fit.

But, you have to pay notice plus retrenchment/lay-off compensation, gratuity, any other severance award if any company policy. Since your company is Canada-based, they do offer some sort of severance award for serving a mandatory period. Plus, any other benefits like insurance or medical on retrenchment as per company policy, because US/Canada-based companies do follow their compensation package inclusive of these elements as separation costs; if not, it's not mandatory.

Badlu

Hi GM Seniors,

I believe we are missing some crucial information here. Upon reviewing the Industrial Disputes Act and the legislation governing shops and establishments, it is essential to consider the conditions outlined in the appointment letter, along with the provisions of the relevant applicable act, before proceeding with any steps concerning the desired outcomes of retrenchment.

According to the Shops and Establishments Act, there is a requirement for a notice period of at least one month for employees who have completed a minimum of three months of service. Therefore, it is imperative to be mindful of the applicable act when moving forward with any retrenchment processes.

Regards,
Mradul Bhatnagar