Pay Policy Dilemma: Should Salaries Be Held During Employee Investigations?

Inquiry on Pay Policy for Employees Under Investigation

I would like to know the pay policy for employees involved in fraud who have been asked to go on leave. Will the company have to continue with pay? If yes, is there any percentage slab fixed, etc.? Can the employer put the salary on hold until the investigations are completed? I request your inputs backed by labor laws safeguarding employer interests.

Regards,
NT

As per the information provided, you have placed him "on leave," and he is currently "on leave," making it legally impossible to discontinue his salary payments. However, in practice, you may withhold his salary pending a preliminary investigation or inquiry into the alleged fraudulent activity. Only upon finding prima facie evidence of his involvement in the fraud and subsequently suspending him pending a detailed inquiry, can you consider stopping his salary.

Compliance with Standing Orders

All these processes should be carried out in accordance with the "Standing Orders" that govern the conduct and discipline of employees. If you do not have an approved Standing Order, you must follow the generally accepted procedure for a "domestic inquiry," followed by any necessary action under the Cr.PC/IPC once fraud has been conclusively proven.

Steps to Address Fraud Allegations

To begin, it is essential to determine the nature of the fraud and issue a "show cause notice," requesting his explanation. Further actions should be taken based on the merits of the case.

Regards, Kumar S.

In general, there will not be any pay policy for employees who commit fraud. The matter needs to be investigated, and based on the preliminary findings, the employee can be placed under suspension. In such a case, they are eligible for a subsistence allowance as per the standing orders of the company.

Thereafter, regular disciplinary proceedings should be initiated, including issuing a charge sheet, considering explanations, and ordering a departmental enquiry. This involves appointing an Enquiry Officer and a Management Representative, ensuring compliance with the principles of natural justice.

Based on the findings of the Enquiry Officer, the Disciplinary Authority can impose appropriate punishment. Additionally, criminal proceedings can be initiated against such employees as per the company's policy.

I agree and appreciate the two members' views. My suggestion is that unless fraud is recorded, you cannot stop salary payable and punish him with a stop payment action.

Steps to Address Employee Fraud Allegations

To establish a record, initially send a letter seeking an explanation within a stipulated time. Upon hearing the whole episode, you may start a domestic enquiry with facts and figures. Then, suspend him and pay subsistence allowance during the period.

I appreciate the comments of all the members. Here, the employee is found to be involved in fraud, which is either under investigation or is to be investigated. The employee has been asked to go on leave. Until he is on leave, you cannot stop his salary.

Handling Fraud and Employee Leave

As fraud is detected by some discreet inquiry in the company, after the employee's return, issue a Charge Memo seeking his explanation for the same. If you have approved standing orders with you, then proceed according to the company disciplinary proceedings in consonance with the right of natural justice. Otherwise, arrange for holding a domestic inquiry according to the right of natural justice. Here, the Departmental Inquiry need not be exactly the same as is applicable to the employees of the Government under Article 311 of the Constitution of India. Just hold a domestic inquiry in consistency with the right of natural justice and decide the case based on the findings of the domestic inquiry.

Subsistence Allowance During Suspension

Moreover, until the employee is under suspension, you have to pay subsistence allowances (approximately Half Basic + DA) until he is engaged in the inquiry.

No doubt, you can file a criminal case against the employee if it is substantiated by proper evidence.

Thanks to all.

Regards,
Raj Singh Phogat

Handling Salary During Employee Leave for Investigation

You can't proceed with the salary if the person is on approved leave and has a leave balance. In that case, you need to hold the salary or may release a part until the inquiry is over.

Chill HR

Question Number 1: What is his designation? Is he in a managerial capacity? Supervisory level? Unionized level?

Question Number 2: What is the nature of fraud? Is it misappropriation or taking money from suppliers?

Fundamental Rule:

Whatever the level may be, if you are framing charges for misconduct, conducting an inquiry is a must. Pending investigation, you can keep an employee under "Suspension pending enquiry." This need not elaborate on the charges at this stage. However, you need to refer to your Standing Orders if you have them, or Standing Orders applicable in your state, which normally prescribe a timeframe for issuing a charge sheet from the date of suspension. It is usually one week.

During this period, the employee needs to be paid a subsistence allowance, which is 50% of the Basic plus DA. If the inquiry continues beyond three months, then the employee has to be paid 75%, and after six months, it is full. (Check the SO for the correct period.)

This addresses your question regarding how the leave is to be treated.

Practical Approach:

Normally at supervisory and managerial levels, people are asked to proceed on leave, and after investigation, if they are found guilty, they are asked to resign. There may be a few variations, but this is the general practice in India. Even at other levels, in case of fraud, if not contested, employees are asked to resign and are given whatever benefits are due. Some companies recover the amount involved in the fraud.

Regards,
T Sivasankaran

Respected members,

I wish to suggest one or two ways to provide treatment for individuals involved in fraud or misconduct. Such individuals should be punished not only through suspension or being sent on leave, but they may also be transferred from their current place of work where such possibilities exist. They could be given an increased workload with unimportant tasks to create mental and physical strain, encouraging them to reform themselves.

Such treatments can help the individual and others avoid repeating such actions in the future. This approach benefits the organization by not only paying the individual's salary but also actively working towards prevention.

Thank you.

Leave Pending Investigation: Understanding Industrial Law

The concept of 'leave' pending investigation or enquiry into an alleged fraud is alien to industrial law. If your establishment is governed by Standing Orders and the employee involved in fraud is a workman, the Standing Orders provide for the suspension of the workman concerned, pending further action into the matter.

If the employee is not a workman and the company is not governed by the Standing Orders, then the company must have framed its own rules of conduct or terms of contract covering the procedure for dealing with such acts of misconduct, which provide for the suspension of the delinquent employee. An employee under suspension needs to be paid a subsistence allowance at the rates specified under your rules or terms of the contract.

If you have nothing providing for his suspension and you have sent him on leave, you must have such an enabling provision in your policy. In the absence of which, questions may arise as to how an employee can be asked to go on leave without requesting it.

Regards,
B. Saikumar
Labour Law Advisor
Mumbai

Addressing Employee Fraud and Leave Policy

Sai Kumar has made a very valid point. How can you ask an employee to proceed on leave without them asking for it? Fraud is a serious matter and is best attended to with the desired haste and urgency. Once the facts of the fraud committed have been established and validated, it would be best to confront the employee with the facts, prevail upon them to admit to the fraud, get them to resign, and relieve them ASAP after all exit formalities are completed.

Yes, one does have the option of suspending the employee pending an inquiry into the charges leveled against them, proving the charges in the Domestic Enquiry, and then, if all goes well, dismiss them from the services of the Company. Filing an FIR against the employee, getting them arrested, and having criminal proceedings launched against them is another option that can be exercised. All this would take a long time, and the eventual outcome may not be what you expect. The choice lies with you.

Best Wishes,
Vasant Nair