Are We Handling Employee Benefits Correctly During Our Factory Closure?

Dear Seniors, We are closing our establishment due to the accumulation of stock, and we are providing the following terminal benefits to the employees:

1. Retrenchment compensation - 15 days' salary (Basic + DA) for every completed year of service.
2. Gratuity - 15 days' salary (Basic + DA) for every completed year of service.
3. Bonus up to date.
4. Leave with wages arrears.

Kindly suggest if this procedure is correct.

Thanks in advance.

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Mr. Kiran, termination of employment due to the closure of an establishment is not considered retrenchment. Hence, you need to pay closure compensation under Sec. 25FFF of the Industrial Disputes Act. However, since the mode of calculation for closure compensation is the same as retrenchment compensation under Sec. 25-F, you can treat the retrenchment compensation as closure compensation.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Thanks for your replies. Kindly let me know exactly whether we need to give both closure compensation (retrenchment compensation) and gratuity, and on what basis we need to give that. Is it on Basic + DA or gross salary?

In addition, you need to give one month's notice or one month's pay in lieu of notice.

Regards,
T. Sivasankaran

Since your establishment is a manufacturing industry employing fewer than 50 employees, there is no need for prior permission for closure as required under Section 25FFA of the ID Act. However, please review and confirm the state provisions applicable in the state where the industry is situated.

For a safer approach, please draft a mutual agreement describing the reasons for closure and the terms and conditions settled between the employee and employer. Kindly ensure it is signed by each employee and the manager/occupier/director (any one) on behalf of the employer.

Clear the dues as mentioned in your post. Instead of retrenchment compensation, you can label it as Closure Compensation (as advised by Mr. Sai Kumar). If you are not providing one month's prior notice to the workmen as required under Section 25F of the ID Act, you must pay one month's wages in lieu of notice (as advised by Mr. Sivasankaran).

Rest is OK.

Regards,
Pkjain

Dear Sir/Madam, Our company also has a manufacturing unit that is closing operations. We would like to know if administrative employees will also be eligible for retrenchment benefits, as the factory workers on the payroll are receiving them.

Dear Sir/Madam, In reference to the earlier query, kindly advise on the retrenchment benefits for administrative employees when the factory is shutting down operations.

Regards,
V.L. Murthy

Dear Kian,

There are two aspects to your query/concern:

1) Legal closure

It is the duty of the occupier of the factory to give prior intimation regarding the closure of the factory to the Directorate of the Factory. Until such time, the factory will be presumed to be running without a license (if you don't maintain a valid factory license for the period). Please refer to the state factories rules for the procedure of closure.

2) Final settlement of your employees

To avoid industrial disputes, it is necessary that you settle all dues of your employees and also give them prior notice of a minimum of one month or salary for one month. The full and final settlement heads you have mentioned include all statutory dues, unless you have any other payment head under any scheme or settlement.

Regards,
Shailesh Parikh
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Vadodara, Gujarat