Can We Adjust Retrenchment Compensation to Match Different Pay Periods for Staff and Workers?

As per the ID Act, retrenchment compensation is payable at the rate of 15 days for every completed year of service. Currently, we are providing a salary for 30 days to staff and 26 days to workers. Would it be feasible to adjust the retrenchment compensation to 15 days (30/2) for staff and 13 days (26/2) for workers?

I kindly request clarification on this matter.

Regards,
Sacheein

Please check this thread started by myself: https://www.citehr.com/315504-proced...blishment.html. I think this will help you.

Regards,
Jawed Alam

For calculating retrenchment compensation, the monthly salary shall be divided by 30. Whereas, for calculating gratuity, it should be divided by 26.

Regards,
Madhu.T.K

Dear Sir,

Assume that if wages are paid to a worker for 26 days (150 per day x 26 = 3900/-):

RC = gross salary / 30 * 15
= 3900 / 30 * 15
= 1950 (This amount is exactly the same if we pay for 13 days (26/2) for every completed year of service).

Regards,
Sacheein

For daily-rated workers, pay 15 days' wages for each year. If your worker is paid Rs 150 per day, then retrenchment compensation should be paid at the rate of Rs 150 x 15.

Regards,
Madhu.T.K

Dear Sacheein,

The simple answer to your query is that if any employee has completed 240 days in your establishment and you want to terminate their service for any reason other than by way of punishment for misconduct, you will have to give them a salary equal to their 15 days' average pay for each completed year of continuous service or any part thereof in excess of six months.

Suppose they worked for 3 years and 6 months; you will have to pay 15 days' pay * 4 = 2 months' average pay. If they worked for 3 years and 5 months, you will have to pay 15 days' pay * 3 = 1.5 months' average pay.

The relevant section of the Industrial Disputes Act is reproduced herein for your reference.

2[25F. Conditions Precedent to Retrenchment of Workmen.—No workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until—
(a) the workman has been given one month's notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice;
(b) the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months; and
(c) notice in the prescribed manner is served on the appropriate Government or such authority as may be specified by the appropriate Government by notification in the Official Gazette.

So don't even think of 13 days just because you pay them a salary for 26 days. The act clearly states 15 days. As per the law, 240 days of working in a year completes a full year of service. So whoever has completed it will be entitled to the compensation as per the calculation given above.

Hope this will resolve your query. :)

Thanks

Dear Kamal Kantji, this is a perfect solution. I was aware of the compliance of the ID Act, but your answer is very practical. Please keep it up and give us juniors this type of practical knowledge.

Thanks,

Kalpesh

Dear Sir, above my query is clear, thanks to all for valuable cooperation, but for calculating continuous service (240) for daily rated workers, should the weekly off be considered even if they are not getting payment for that day (W-off)? Please suggest.

Regards,
Sacheein

Understanding the Calculation of 240 Days

240 days means 240 paid days. In the case of daily-rated workmen who are not paid for the weekly off days, take only the actual physical days present for work. In the case of others who are paid for the off days and casual or other kinds of leaves and holidays, take such paid days also to calculate 240 days.

Regards,
Madhu.T.K

Dear Sacheein,

The 240 days rule is a very controversial rule on which different High Courts have their different views. However, I will try to explain this to you.

In my opinion, if you are paying any daily-rated employee weekly or monthly on a voucher basis, you should calculate their days as 30 per month while calculating 240 days. The reason being that this rule is governed by the respective Shops and Establishment Acts of different states, and more or less, one section related to close day or weekly off is the same in every act. For example, I reproduce the sections from the Delhi Shops and Establishment Act.

"17. Period of rest (weekly holiday).—Every employee shall be allowed at least twenty-four consecutive hours of rest (weekly holiday) in every week, which shall, in the case of shops and commercial establishments required by this Act to observe a close day, be on the close day.

18. Wages for the holiday.—No deduction shall be made from the wages of any employee on account of the close day under section 16 or a holiday granted under section 17 of this Act.

If an employee is employed on a daily wage, he shall nonetheless be paid his daily wage for the holiday, and where an employee is paid on piece rates, he shall receive the average of the wages received during the week."

Section 18 clears all the ambiguity on the subject. Please also see the definition of workman in the act, reproduced here:

(7) "employee" means a person wholly or principally employed, whether directly or otherwise, and whether for wages (payable on permanent, periodical, contract, piece-rate or commission basis) or other consideration, about the business of an establishment and includes an apprentice and any person employed in a factory but not governed by the Factories Act, 1948 (43 of 1948), and for the purpose of any matter regulated by this Act, also includes a person discharged or dismissed whose claims have not been settled in accordance with this Act;

The definition of "employee" itself says any person wholly or principally employed, whether directly or otherwise, and whether for wages payable on permanent, periodical, contract, piece rate or commission basis. Here, the daily wager will fall in the category of periodical paid employee. PLEASE KEEP THIS IN MIND THAT LABOUR LEGISLATION IS A BENEFICIAL LEGISLATION, SO FOR EVERY SECTION WE HAVE TO GIVE THE MOST LIBERAL INTERPRETATION POSSIBLE. Going as per this rule, the daily-rated employees are also entitled to the wages for their weekly off, IF THEIR EMPLOYMENT LASTS FOR AT LEAST 6 DAYS IN A WEEK.

One more suggestion: if you are not paying your daily-rated employees the payment for weekly off, please start paying it to avoid any unfavorable situation, or pay them off daily at the end of the day on a voucher for their wages for the day.

Hope this will clear the situation. Suggestions and further points of view are invited to enlighten the knowledge.

Thanks,

Retrenchment Compensation Calculation

Kindly check the attachment file on retrenchment compensation calculation, which is used in our establishment. Experts, your views will be highly appreciated.

Regards

Dear abedeen7,

The attachment is perfectly fine. I recommend that everybody should follow this calculation to avoid any legal problems related to retrenchment. Thank you, dear, for such a valuable addition to the discussion.

Regards,
[Username]

Dear Sir, please excuse me, I do not agree with your comment ("One more suggestion: if you are not paying your daily-rated employees, the payment for the weekly off, please start paying it to avoid any unfavorable situation or pay them off daily at the end of the day on a voucher for their wages for the day").

You may be right as per the Shops and Establishment Act, but concerning the Factory Act, it might be different. If you have any information regarding the weekly off payable to daily-rated workers, kindly share it with us.

Please clarify.

Waiting for a reply from Madhu, Kaushik, and Banerjee, sir.

Regards,
Sacheein

I think the retrenchment calculation should be as follows:
For Staff = Gross Salary × 30/2 × Number of working years.
If this calculation is incorrect, please provide the correct solution.

Regards,
[Name Removed For Privacy Reasons]
[Phone Number Removed For Privacy Reasons]
[Phone Number Removed For Privacy Reasons]

Supreme Court Ruling on Retrenchment Compensation

The Supreme Court, in the matter of Guru Jambheshwar University vs. Dharam Pal, decided on 17 January 2007, has held that "in the case of a monthly-rated employee, the fifteen days' wages shall be calculated by dividing the monthly rate of wages by twenty-six and multiplying the quotient by fifteen. However, no such amendment has been made in the Industrial Disputes Act. If the legislature wanted that for the purposes of Section 25F(b) also the average pay had to be determined by dividing the monthly wages by twenty-six, a similar amendment could have been made. But the legislature has chosen not to do so. This is an additional reason for holding that the principle of 'twenty-six working days' is not to be applied for determining the retrenchment compensation under Section 25F(b) of the Act."

rajanassociates

Please see https://www.citehr.com/285737-legal-...-industry.html

I agree with Rajan. Average pay under Section 25F of the ID Act means wages paid in the 3 months immediately preceding retrenchment divided by 3. The principle of 26 days followed for the calculation of gratuity under the Payment of Gratuity Act is not applicable for the determination of retrenchment compensation. [Guru Jambheshwar University, Hisar vs. Dharam Pal (2007) 1 LLJ 1006 (SC)]

Regards,
Madhu.T.K

Calculating Retrenchment Benefits for Full and Final Settlement

How to calculate retrenchment benefits at the time of full and final settlement of a laborer?

Regards,
Shashi Kumar

Could you please let me know what the retrenchment benefits are? What compensation do we have to pay while retrenching any employee?

Regards,
Sweta Joshi

Whether the above payment is over and above Gratuity Payment. Suppose he worked for 4 years and accordingly 2 months' wages paid to him. What about the payment of Gratuity.

Retrenchment compensation discussed above is over and above the amount payable as gratuity following the Payment of Gratuity Act. Therefore, for those who qualify for gratuity (qualify means to be eligible to receive it by working for at least 5 years of service), it should also be paid along with retrenchment compensation.

Madhu.T.K