What Are My Retrenchment Liabilities for a Small Factory with Long-term Workers?

Dear Sir, Our establishment has 5 workers. We are engaged in job work for a third party. Out of them, 1 has 1.5 years of experience, and 4 have 10 years of experience. Now, I want to discontinue our manufacturing operations.

Liabilities for Retrenchment

What are my liabilities for retrenchment? Can you please guide me if, in addition to the 1-month notice pay, my establishment is liable to pay 15 months' salary for each completed year of service as well? My understanding is that, being a small factory, gratuity is not applicable to us. Kindly advise me.

With Best Regards

Understanding Retrenchment Liabilities

You have to pay one month's wages in lieu of notice and 15 days' average pay for every completed year of service and six months' excess part. Besides, in some states, the Shops & Establishments Act stipulates gratuity in case an employee completes 10 years. This is irrespective of the applicability of the PG Act.

Please verify:
(i) Whether you come under the Shops & Establishments Act.
(ii) Whether the Shops & Establishments Act of your state has such a provision.

Thank you, Sir, for the prompt reply and for guiding me regarding my liabilities. My establishment is located in Panchkula, Haryana. Could you kindly guide me as to whether the Shop Act applicable to our organization has any provisions for gratuity?

With Best Regards

Your establishment will not come under the purview of the Payment of Gratuity Act and hence is not required to pay any gratuity to the employees.

Regards,
Madhu.T.K

Dear friend,

I'm sorry to learn that you are closing down, and retrenchment is a thankless job. Nevertheless, you have to comply with some statutory provisions. Please answer these questions:

1. Has your firm ever been registered under any Act? Have any licenses been taken?
2. As you now have 5 members to be retrenched, did you ever have more than 10 members?

Based on your description, it seems like you were running a small workshop-like firm, unregistered. If so, you may consider paying one month's notice pay and an ex-gratia in lieu of or towards retrenchment compensation (15 days' wages per year of service or part thereof). No gratuity is payable. But, if you have a good heart and some money, do whatever you can. These actions will relieve you from statutory and mental botherations.

Good luck, pal.

Kumar S.

Thank you, sir, for your guidance.

Case Details

The facts of our case are as follows:

• Our establishment is located in Haryana.
• It's a partnership firm.
• We have SSI Registration, TIN No, ESI No, and are registered with the Shops Act.
• We obtained the ESI No. in the year 2000. At that time, we showed 10 workers (5 daily workers were shown then) for 2 days only. Since then, we have had only 4-5 workers.

Kindly guide.

With Best Regards.

Reconsideration of Gratuity Act Applicability

The matter requires a rethinking in light of the description given now. An establishment (since yours is registered under the Shops Act) that has employed 10 or more persons on any day during a period of 12 months shall be covered by the Payment of Gratuity Act. This 12 months is not reckoned from the date on which the payment becomes due. I am not sure if there is any different interpretation to this. If yes, please share. If no, then it shall mean that once an establishment employs the 10th employee, the Act will become applicable to that establishment, and it will continue to be applicable even if the number of employees becomes less than 10. In this scenario, your establishment is under the Payment of Gratuity Act. Moreover, you are covered by the ESI Act also.

Regards,
Madhu.T.K

Understanding Gratuity and Employee Strength

That is the query/doubt I have raised. It need not necessarily be a date on which you close down the establishment, and thereby the question of payment of gratuity arises because the event of payment of gratuity may arise when an employee, who is otherwise eligible for gratuity by way of his length of service, leaves, or even upon the death of an employee. If so, the year in which your employee strength became 10 shall be considered as the year in which the Act became applicable to your establishment.

I expect more interpretations on this by members.

Regards,
Madhu.T.K

Thank you, Madhu Sir. I also appeal to the members to kindly provide their valuable inputs in interpreting the true intention of the law.

With Regards,
Anudeep Goyal