Is It Legal to Deduct Salary for Missing Deadlines? Seeking Guidance on Penalty Policies

Hi Seniors,

I have recently joined a new company as HR. However, the company's MD has directed me to deduct 5% of an employee's salary as a penalty for not completing the work within the deadline. Please guide me on whether this is the correct policy. Also, clarify whether it is legally valid to penalize an employee for non-completion of work.

Please provide your valuable input in this regard.

Regards,
Aman

Deduction from Salary as a Penalty

Deduction from salary as a penalty for non-completion of work is absolutely wrong. This type of approach can be seen between two parties who attend to each other's work based on a clear-cut understanding of work which is to be completed within the time frame agreed upon. The copy of the conditions will be printed and signed by both parties. The above approach can be deemed valid between two entities or organizations or companies who perform an activity on agreed payment terms and conditions.

The same cannot be applied to employees. Why? Because the non-performance of any employee is due to various factors, not the employee alone. The suitable infrastructure, proper training facilities, cooperation at the workplace, etc., have to be considered before penalizing any employee. I mean to say that the degree of loss is to be clearly defined before the start of the work, not after the actual loss. We should not forget that even employees are governed by various laws, and a harassment case can also be registered against the company and its representatives based on the seriousness of the case.

To put it simply, this approach is a serious dent to the image of the company in the long run, and by such activities, the unprofessional way of dealings is exposed. Human resources are a valuable resource that is to be treated with utmost care and respect.

Regards,
Dayal

Practical Case of Salary Deduction

Let me share a practical case from our company. One day, I sent one of our accountants to the bank to deposit a cheque. However, the accountant mistakenly wrote the wrong account number on the deposit slip, and as a result, the cheque couldn't be cleared. In this situation, the company's Managing Director instructed me to deduct 5% of the accountant's salary.

When I tried to explain to the Managing Director that it may not be legally valid to deduct the employee's salary, the MD insisted that we pay our employees for their work, and every employee is responsible for performing their tasks correctly and on time. The MD also mentioned that if any employee fails to complete their work accurately and within the deadline, they should face a penalty.

Please advise on how to handle this situation.

Thank you.

Addressing Salary Deductions and Legal Implications

The MD seems accustomed to having his orders obeyed, and he is trying to bend the rules according to his vision. Kindly brief the MD that the company pays the salary to employees for the work they have rendered. Penalties cannot be imposed on them as their work depends on various factors.

Also, if one of them approaches the Labor officer, you are opening a Pandora's box. However, if the MD still insists on making deductions, for your own protection, ensure to get the same thing in writing from the MD.

Regards,
Ashutosh

Sir, can you please provide any relevant case law, section, etc., which state that the employee cannot be penalized? Actually, when I tried to convince the MD, he asked, "In which law is it written that the employee cannot be penalized for not completing the work within the deadline?" Please provide any case law or relevant section for the same.

Non-completion of work can be due to various reasons. Some may not be in the employee's control. If an employee is a habitual non-performer or underperforms, counsel him, correct him, ask for an explanation, and still, if there is no improvement, then issue a show-cause notice. Based on the reply, initiate further actions. The Managing Director (MD) cannot just offhandedly or abruptly decide to cut 5% of the salary as a penalty. Everyone has to follow the laid-down procedures to impose fines or punishments.

Issue with Accountant's Error and Salary Deduction

It was the mistake of the accountant that the account number given to him was correct, but the name "Nirdesh" was written incorrectly by the accountant. Due to this mistake, one of the creditor's cheques has bounced. The creditor has directly approached our MD regarding the cheque bounce. When this matter was brought to the attention of the MD, he immediately instructed me to deduct 5% of the accountant's salary. However, the accountant has also accepted the mistake made by him.

Please clarify in this case whether it is correct to deduct 5% of the accountant's salary.

Anonymous,

Answer is no. You cannot deduct 5% of the salary. Your MD may think he is the boss - I agree he is your boss - but he is subject to the laws of the land. The accountant can be warned or even punished for the offense. However, without due process, no punishment should be given.

Sir,

Please provide any case law or section that states an employee cannot be penalized because the Managing Director is requesting clarification on this matter. Thank you.

First of all, it is important to consider whether there is any deadline fixed on paper regarding depositing the cheque. Secondly, if the cheque was deposited with the wrong number within one or two days of receipt and returned due to a clerical mistake, where is the question of a deadline? Thirdly, is your MD perfect and free from making any mistakes? Fourthly, your request for case law or any section is quite absurd. Minor details are not typically described in law or case laws unless specifically addressed with cogent reasons by the affected person seeking justice from the court of law if injustice has been done to them.

By the way, what will you do with the case law or any section? Do you have any power to enforce someone else's case law regarding your accountant's situation? Can you enforce any case law not related to your accountant's case on your MD or compel him to follow your advice?

You need to simply review the terms and conditions of the accountant's appointment. If there is no provision to impose a penalty for such a mistake, and the mistake is not intentional on the accountant's part, just point that out to your MD. However, if your MD has ordered a penalty in writing, regardless of its correctness, it is better to comply. Let the accountant address this appropriately with the MD. As a subordinate, you should not attempt to impose your desires on your MD.

Hi Aman,

First, prepare to issue the charge sheet, stating his negligence of work and ask him to give his reply. After receipt of his reply, conduct a domestic enquiry, issue a 2nd show cause letter, then the punishment order to be issued according to your standing order.

Regards,
Karthikeyan S.

Handling Employee Deductions and Legal Compliance

Even if you charge sheet him and he accepts his mistake, and also accepts the deduction, you will have to show that the actual loss caused by the mistake amounted to the amount you recovered from the employee. For that, you will need to keep proof, such as a cheque bounce slip. In establishments, you must maintain a register of fines, and the fines collected have to be submitted to the Labour Welfare Fund, which cannot be kept by the management. You may deduct the money actually lost, but anything in excess of that has to be shown in the register and needs to be deposited with the Labour Welfare Fund. Just another food for thought.

Regards