How Do I Draft a Cash Salary Agreement to Avoid Future Disputes?

Hi seniors, I am working in a company as an HR executive. One employee has requested me to pay the salary in cash due to personal reasons, so I want to draft a letter as proof to ensure no issues or claims are raised by the employee in the future. Please send me a letter format or a letter as soon as possible.

Regards,
Bimlendu

Kindly ask the employee to submit the request in his own handwriting as a written application, with the reasons mentioned therein, along with his signature, employee code, and name. File this application in the personal file. There is no need for you to provide him with any return letter.

Also, if there is no policy in your company to pay by cash, please refrain from making exceptions. This will only create more work for you. ATMs are as good as receiving salary in cash. Additionally, you will have to create cash vouchers for his salary, obtain his signatures, and file them properly for verification. In contrast, with bank transfers, the process is much easier and the data is stored with an external party (duplicate data). Therefore, it is advisable to refrain from making exceptions.

Regards,
Ashutosh Thakre

Being an HR Executive, you are not responsible for distributing salary; the accounts department is. Therefore, you can ask the employee to contact them directly.

Salary Distribution Responsibility

If you have no such system and only HR is responsible for distributing salary, you still don't need to pay in cash. Instead, you can transfer the salary amount to the employee's personal bank account (if they do not have an individual employee bank account) by having them sign an authorization letter for providing 'bank details for transferring the salary to the employee's personal bank account directly'.

Adherence to Organizational Policies

You must adhere to the organizational policies and rules created by the authority, and the employee in question can withdraw the amount anytime. No personal reasons or excuses in this regard are applicable. Be professional.

As per the Payment of Wages Act, the salary should be paid in cash. If the net salary exceeds Rs. 20,000/-, then you cannot pay the salary in cash but must pay by means of a cheque as per the provisions of the Income Tax Act, 1961. Since the employee is requesting to be paid in cash subject to the above terms, you can do so. Nowadays, most organizations disburse salaries through banks by crediting employees' respective bank accounts. This is the standard practice for salary disbursement. Regardless of the payment method, you should ensure you have the employees' acknowledgment on your wage register or payslip as required under the Payment of Wages Act.

Regards,
Adoni Suguresh Sr. Executive (Pers, Admin & Ind. Rels) Rtd Labour Laws Consultant

Please remember one rule. An exception made in the standard policy/policies of the company becomes a precedent in the long term (for other employees to quote against the one who has made the exception) and creates more problems for HR personnel. Therefore, the payment of salary should be through the bank only.

In addition to the views expressed above, please ensure that creating an exception (of paying cash) does not pose problems to the accounts department and to your organization as a bad precedent.

Regards,
V. Raghunathan

Payment of Wages Act, 1936: Exclusion Criteria

Under Section 1(6) of the Payment of Wages Act, 1936, any employee drawing a wage of more than Rs. 10,000 per month will stand excluded from the purview of the Act. This means that such a worker cannot insist on payment of his wages in cash as a matter of right. It is not clear from the query if the worker involved is such an excluded worker. Assuming that he is, you can accommodate his request for payment in cash, provided such cash payment does not exceed Rs. 20,000, so that you do not get involved in Income Tax Rules violations, as rightly mentioned by Mr. Adoni Suguresh.

Regards,
Pradeep Sukumar

First of all, you should ask the employee to share what the personal reasons are for requesting the salary in cash. It is very difficult to assume.