Company Closure Due to Owner's Age: What Are the Employee Settlement Rules?

Our company wishes to close as the owner is aged. What are the settlement rules for the employees? Please provide your valued information.

Thank you,
Ramesh

Employee Settlement Guidelines for Company Closure

It's rather simple. The number of people who have worked for more than five years in the company as employees will have to be paid their earned gratuity. All other statutory payments due to all your people will have to be settled, including notice pay, leave encashments, and EPF.

Try to be proactive and supportive of the people you are letting go. Be detailed in giving them their Full and Final (FnF) settlement, service certificates, PF details, and all such relevant documents. Slip-ups will only create avoidable long-term complications and heartaches.

Regards,

You have to pay retrenchment compensation also to the employees in the 'workmen' category under Section 25FFF of the ID Act.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]

From a practical point of view, if the employer is closing down a healthy company, they can reward their employees by paying both gratuity and retrenchment compensation irrespective of their eligibility. Otherwise, strictly going by law, other learned members have already clarified the point.

Regards,

Mr. Varghese,

In this case, if we pay the Gratuity, do we also have to pay retrenchment compensation under the ID Act? Are the calculations the same? Should we provide both benefits to the employees? It may overburden the employer.

Regards,
[Name]

Yes, you have to pay both gratuity and retrenchment compensation as per the Gratuity Act and ID Act respectively.

Gratuity Payment

Gratuity is to be paid to all employees who complete 5 or more years of service, calculated as follows: monthly salary / 26 * 15 * number of years of service.

Retrenchment Compensation

Retrenchment compensation is to be paid only to workmen who have completed 1 or more years of service, calculated as follows: 15 days average wages * number of years.

In addition, you have to give one month's notice to workmen or wages in lieu thereof. If the workmen submit a resignation, you do not have to pay retrenchment compensation.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]

Eligibility for Gratuity

As per the law, all the people who have completed five continuous years in the company as employees are eligible for gratuity.

Succession Planning for Aged Owners

The other thing that I want to suggest is that if an owner is aged, closing the running company is not the solution. Instead, the owner should hand over the responsibilities to one of the trusted persons who can run the company successfully. As of now, Ratan Tata is aged, but he cannot think of closing the company; rather, he should hand it over to an eligible and trusted person as there are many people employed by his companies.

Considering Employee Futures

It's also not a matter of a small or big company but thinking about the future of people who have worked for you for so long, whether it's 2 people, 2 crore, or more.

Dear Sir,

I have been working with a company since 2011. Currently, due to financial constraints, the company is facing difficulties and is under the control of lenders. All the top officials from the HR department have also left. I am uncertain about receiving gratuity from the company upon my departure, even though the fund was established. Are there any legal actions that should be pursued in this situation? It is also challenging as the company is being referred to the NCLT.

Thank you.