Notice Period Dilemma: Is Holding Back Salary for Two Months a Feasible Solution?

Hi, All, I am looking to make some changes to the notice period for the employees. In the case of an employee resigning, we have the clause stating "that either he serves us for 3 months or his gross salary is to be given to the company."

Suggestion for Notice Period Adjustment

My suggestion is, can we retain the gross salary for 2 months with the company, and when the employee leaves, release it to them on that day? Can anyone suggest if this would be feasible to do so?

Thanks,
Veronica

You cannot hold the salary of the employee, but you can keep some amount as a deposit from the employee at the time of joining, subject to acceptance by both parties.

Company Policy on Employee Resignation

As per the company policy, if the employee resigns:
- He should be allowed to work for the notice period.
- You should waive off the notice period and relieve him immediately. However, you cannot reduce the amount equivalent to two months' notice period salary and relieve him immediately.

Regards,
Kamesh

My point was that if the employee agrees to work for 3 months, is it possible for the company to hold off the funds or salary for 2 months and release the same funds upon the employee's departure?

Thanks

I have not understood why you wish to keep two months' salary with you only to be released when you relieve the employee! If your concern is that the leaving employee may not have enough funds or may not be inclined to pay up the salary in lieu of the notice period, then under the terms and conditions of employment, you may ask for a certain amount as a security deposit (with or without interest) and appropriate the same according to the conditions prevailing at the time of employee separation. You may even recover a specific amount (by explicit agreement with the employee) from the salary until the requisite amount is accumulated (again to be treated suitably at employee separation). This you will do only to protect the employer's interest. A transparent method to ensure this can be LEGALLY permissible though some may fault it on moral grounds.

Remember, organizations are "economic" organizations and misplaced sympathy or charity is not obligatory. But to each his own.

Tell me if you have a solution to your problem in this mail!

Regards,
Samvedan

Notice Period

Mr. Kamesh rightly said that the salary cannot be withheld by the employer. The reason is more legal. Salary is not a bounty to be given to the employee at the mercy of the employer, nor is employment a voluntary service. Employment is a contract between the employer and the employee under the Contract Act 1872. A contract, as per Sec.2(h) of the said Act, in order to be valid and enforceable, should have three main ingredients. There should be an offer by one party, it should be accepted by the other party, and there should be consideration for such acceptance.

In the case of a contract of employment, the employee accepts the offer of the employer to work for him under certain terms in consideration of the employer paying him salary or wages. Such a contract of employment is enforceable under law. If you withhold his salary for two months in lieu of the notice period, it implies that you require him to work freely for the employer for two months without any consideration, which may offend the very basis of the contract and may vitiate the validity of the contract.

Further, one cannot lose sight of the existence of certain labor Acts like the Payment of Wages Act 1936, though with selective application, they nevertheless prohibit an employer from withholding wages of an employee for any reason that is not permissible under the law. The Wages Act even renders any agreement to enable an employer to deduct or withhold wages on any ground that was not authorized under it as null and void. This ground under discussion is not certainly an authorized ground for deduction.

Therefore, the proposal is fraught with legal implications.

Regards,
B. Saikumar
HR & Labour Law Consultant
Chipinbiz Consultancy Pvt. Ltd
Mumbai
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