Can We Deduct Damages from a Contract Employee's Salary Without Legal Trouble?

One of our contract employees damaged some company property intentionally. Can we deduct the damages amount from his salary or not? In the future, will we face any legal problems for the same?

Awaiting your reply.

If the employee damages the property intentionally, report it to your local police station immediately and file a lawsuit against him.

Regards,
Lakshminaryana

We can deduct from his contractor's payment only if you (Principal employer) have executed a valid contract agreement with the contractor. The contract agreement should cover the clause stating that any damages caused by the contractor's employees will be deducted from the contractor's payment.

Please keep in mind that we cannot deduct the damaged amount directly from the contract workmen.

Regards,
D. Pannerselvam

The recovery against damage cannot be made from salary as such unless there is acceptance from the particular employee towards the damage done. Since it is a matter under contract, you can raise a debit note against the contractor and retrieve the compensation against damage. In turn, it will be the contractor who will recover the same from that employee. This will only be possible if you have a valid contract with a suitable indemnity clause.

Thanks,
Bijay

First of all, please check the contract agreement. There should definitely be a clause providing for such damages. Just in case where the said clause is not available in the agreement, you need to do the following:

Steps to Address Damages by a Contractor

Step 1: Assess the extent of damage in terms of money and in terms of time hours lost.

Step 2: Get this statement cross-verified by the external auditor, under a certification of the total amount.

Step 3: Issue a letter (under registered post acknowledgment due RPAD) intimating the nature and extent of damage to the contractor.

Step 4: If the value is high, start deducting in installments; else recover the entire amount in the immediate next bill.

Step 5: Issue a letter to the contractor enlisting the future course of action in such incidents.

Step 6: You can also proceed against the said contractor and file a police complaint under the provisions of IPC for "willful negligence" acts such as damage or destruction of property and endangering co-employees' peaceful working environment.

Your action of deducting the damages amount from the salary of the contract labor will essentially be a blunder and a retrograde step. By doing so, it may be perceived that he was your employee, and once he becomes offensive, he can harm you in many ways. Since the particular employee was deployed by the contractor, who is his immediate employer, you can certainly ask the contractor to recover the damages from him and pay the amount to the employer. Do not deal directly with him. You can ask the contractor not to deploy him for the work/job relating to your establishment in the future.

Regards,
BS Kalsi
Member since Aug 2011

I agree with Panerselvam; he is absolutely right. It depends on your contract; you should have mentioned the part about damages in the contract. However, you can deduct that penalty or damage with the acceptance letter from that person. I think there will not be any legal problem as it is mentioned in the Minimum Wages Act of 1948. But remember that you are required to obtain a signature from that person or any two witnesses.

The person who damaged your property is not directly employed by your firm, and hence, his salary is not paid directly by you. If that is the case, where does the question of deducting from his salary arise? I suggest asking the labor contractor to rectify the damage at his own cost. Otherwise, the equivalent amount can be recovered from his contract bill after obtaining his written consent. This approach is preferred over directly interacting with the contract employee who is not under your direct supervision.

Regards,

It doesn't matter whether the damage has been done intentionally or unintentionally, but you cannot force the person to compensate for the damage by deducting the amount from their salary. However, if they agree to it, then only can you proceed with deducting money from their salary.

Contractual Obligations

Additionally, as the worker was on a contract basis, you need to refer to the contract agreement and see what is mentioned in case of damages. If it is not clearly specified, discuss the issue with the contractor.

Handling Minor Damages

Furthermore, if the damage is minor and not significant, you may consider not escalating the issue and simply issuing a strict warning that such incidents will not be tolerated in the future, with the warning of strict action if a similar situation occurs.

I think the above information is sufficient for you because all the above communication indicates that you are not directly liable to deduct the amount from the contract employee's salary. It should be deducted from the contractor's bill, and the contractor will decide whether to recover it or not.

There is no direct relationship between contract labor and the principal employer, so we don't deduct any damage amount from the contract employee's salary. If there is a valid agreement between the principal employer and contractor, then we deduct it from the contractor, considering there are valid clauses in the existing agreement.

This is for your information.

Thanks,
Rajesh Kantubhukta
Human Resources
Adani Wilmar Limited

You cannot deduct the amount of the damages from the salary of the contract employees. Instead, you can either deduct the amount from the monthly bills of the contractor or deduct the damages from the security deposit of the contractor if you have kept one.

Regards,
Pankaj Moholkar

One of our contract employees damaged some company property intentionally. Can we deduct the damages amount from his salary or not? In the future, will we face any legal problems for the same?

Handling Damage to Company Property by Contract Employees

If the contract employee damages company property intentionally, you should immediately fire/terminate him and file a complaint with the police (FIR).

Thanks,

M.K. Singh

Everybody has given the right solution of taking any action routed through the contractor. Don't you think that you have tried to complicate matters by suggesting firing or terminating the contract labor and complaining to the police? I think you need to consider these points deeply:

1. What locus standi does the Principal Employer (PE) have to terminate or fire the contract labor?
2. You have used the word 'fire' as if we are in a society where a worker does not have any social security.
3. Can a worker be terminated or fired without being given an opportunity to be heard or without following the principles of natural justice?
4. Will the police interfere in the matter?
5. Suppose the police agree to register an FIR and make several visits to collect evidence. Will it not affect industrial harmonious relations?

Seniors' views invited.

Regards,
BS Kalsi
Member since Aug 2011