Can We Deduct an Employee's Loan from Their Gratuity After Termination for Absenteeism?

Our organization is an NGO. We terminated one of our employees due to habitual absenteeism. This employee had taken a loan from our employees' cooperative society (registered, independent). Kindly guide me on whether we can deduct the loan amount from the gratuity amount.

Regards,
SHETH.

Hi,

1) Gratuity, PF, etc., payments cannot be stopped because they are statutory payments.
2) However, you can hold the same for some time and ask them to clear the loan amount.

Regards,
Ganesh

Do you have a procedure for a proper loan application and for seeking a surety who undertakes to pay back the loan in case the person defaults? If no such provision exists, then only his wages/salary can be held back.

Regards,
Col. Suresh Rathi

With regards to your query as to whether you can deduct the loan amount from the gratuity, the answer is a BIG NO. You cannot deduct the loan amount from the gratuity dues.

Section 13 of the Payment of Gratuity Act, 1972

Section 13 is relevant, which protects the gratuity and is reproduced below:

Section 13. Protection of gratuity: No gratuity payable under this Act and no gratuity payable to an employee employed in any establishment, factory, mine, oilfield, plantation, port, railway company, or shop exempted under section 5 shall be liable to attachment in execution of any decree or order of any civil, revenue, or criminal court. When an amount accrues on account of gratuity, it has legal protection under the law, and recovering or setting off ANY amount from it is unthinkable.

However, you are free to recover the loan amount from the persons who stood as guarantors in favor of the individual.

Regards,
BS Kalsi
Member since Aug 2011