Retrenchment Compensation Dilemma: What Counts and How Is It Calculated?

Hi all,

Retrenchment Compensation Query

1. The workman was initially employed on a fixed-term contract for one year. After completing that year, he was given a regular appointment. Today, he is being retrenched, and the employer is willing to pay retrenchment compensation. When calculating the retrenchment compensation, will the one year of fixed-term service be considered or not?

2. What amounts will be included in the retrenchment compensation? Will it cover HRA, medical, LTA, CCA, conveyance allowance, and special allowance?

3. The contract of appointment specifies that he will be paid "gross wages," with a breakdown provided. Will the retrenchment compensation be based on these "gross wages" as outlined in his contract?

Regards,
Shiv

Dear Shiv,
The workman who worked during the contract period will not attract any compensation. Upon completion of the contractual period itself, he might have been paid by the company. Retrenchment compensation, Notice Pay, Leave Pay, and Gratuity are all calculated based on the Basic salary and not on the Gross salary, CTC, or other allowances.

Thank you.
Regards

The appointment letter issued to the individual at the time of contract appointment and the appointment letter issued subsequently have to be read to formulate any views on the issue raised by you.

For calculating retrenchment compensation, the definition of the term "wages" as defined in the Industrial Disputes Act 1947 has to be followed. Please go through the section.

For calculating gratuity, the basic pay plus dearness allowance, if any, have to be reckoned. For notice pay and leave pay, the gross salary has to be reckoned.

With regards,