Can HR Deduct Salary for Employee Donations? Seeking Clarity on Company Rules

Clarification Needed on Employee Donation Request

I am working in the automobile industry, where 145 employees are employed. In our company, one employee had an accident and has been undergoing treatment for two months, rendering him unable to work for the next six months. Some employees in our company approached me and presented a written request with signatures from over 100 employees. The request states that they would like to donate an amount to the employee undergoing treatment due to the accident. They are proposing that the HR Department deduct 500 Rs from each of their salaries and give it to the affected employee. Is this action permissible according to company rules? Please provide a technical explanation.

Thanks & Regards,
AKHIL S

Legally, such deductions are not permitted. I would not encourage such deductions. The kind gesture being planned by employees is voluntary; let them keep it out of company records. Authorized deductions are given in the Payment of Wages Act as an example. The company should keep out of this fund collection.

I don't think there is anything wrong with it. If the requirement is immediate and employees find it difficult to mobilize the fund by meeting each person individually, the company can pay the sum now and recover it from the employees' salaries. Moreover, there is written authorization from the employees. This deduction will not be against the Payment of Wages Act because the Act permits contributions for the benefit and welfare of employed persons or their families (Section 7 (kk)).

Regards,
Madhu.T.K

"This deduction will not be against the Payment of Wages Act because the said Act permits contributions for the benefit and welfare of employed persons or their families (section 7(kk)).

Section 7(kk) of the Payment of Wages Act, 1936

Section 7(kk) of the Payment of Wages Act, 1936, reads as follows:
"Deductions made, with the written authorization of the employed person, for the payment of his contribution to any fund constituted by the employer or a trade union registered under the Trade Unions Act, 1926 (16 of 1926), for the welfare of the employed persons or the members of their families, or both, and approved by the appropriate Government or any officer specified by it in this behalf, during the continuance of such approval."

This deduction, though voluntary, does not meet the criteria specified in the section."

Interpretation of Law on Employee Contributions

This is just an interpretation of the law. The objective is simple: any contribution towards the welfare of persons employed or their family members. Now, if the employer is paying the sum as an advance recoverable from the salaries of various employees, will there be any illegality? I think clause (f) of Section 7 permits that.

Moreover, such kinds of contributions for marriage, housewarming, etc., of employees are very common nowadays, and I don't think that any authority under the Payment of Wages Act has taken action against the employer for granting this facility, i.e., advancing money in a lump sum and recovering the same from various persons.

If the authorities are so strict in compliance, then I will be in trouble because it is very common in my establishment that whenever there is any requirement, whether marriage or accident, hospitalization, people use to contribute, and it will be the company that pays the amount initially and then recovers it from the salaries.

Regards,
Madhu.T.K

Dear Madhu,

Your point is well taken. I only wrote about my interpretation of the law after reading the section concerned. Practice may be different from the theory of law.

There is a law, there is a practice, now one has to decide which to follow.

Tomorrow, an employee can say his signature was forged. When a combined request reaches the management, who verifies the signatures??

Company accounts are audited and may have to answer queries (though legitimate answers are there).

I am all for employees helping each other in case of emergencies and keeping the company in the loop, but routing the funds through the company is incorrect in my opinion.

Like Madhu TK mentioned, the arrangement of deducting from salaries and paying to the concerned employee should suffice. However, Nathrao's points can't really be wished away, especially since you say only 100 employees have given their OK in writing. What about the rest... what if anyone from this lot raises objections later?

You didn't mention if there is a Union. If you have one, then they can take the responsibility of speaking on behalf of all the employees. If not, it would be better to take the OK from each employee separately than as a single letter. The written OK of each employee can go into each employee's Personal File. Since this act basically inculcates cohesion among the employees, it's better to find ways to do it.

Regards,
TS