Retrenchment Compensation for Long-term Employees: What Are the Alternatives to Bonus and Gratuity?

Dear Senior,

This is Atul. I have a query regarding retrenchment compensation payable to employees who work for more than 20 years in our organization. Instead of bonus and gratuity, what will be the compensation for retrenchment?

Retrenchment Benefits Based on Employment Category

Retrenchment benefits differ from person to person according to their status and employment category. Suppose any person has been engaged in the Workers Category in any establishment. His retrenchment will be governed by the Standing Orders, if applicable, and under the provisions of the Industrial Dispute Act.

In normal practice, he will be entitled to 15 days' salary for each completed year of service, excluding gratuity and other payable dues until the date of termination.

If the person is appointed in the Staff/Supervisory Category and governed by the appointments clause, he will be paid the Notice Pay Amount mentioned in the Appointment Letter with all dues, including reimbursement of LTA, also payable on such date.

Regards

Retrenchment compensation under the ID Act is calculated at 15 days per completed year. However, this compensation is provided in addition to all other dues such as bonus, gratuity, leave encashment, etc., and not as a substitute for retrenchment compensation. The provision for retrenchment is explained in the Act. I recommend referring carefully to the clause on permission for retrenchment and its application to develop a comprehensive understanding.

Regards, RDS Yadav
Director - Future Institute of Engineering and Management Technology
Labour Law Advisor
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Mr. Dubey, who is considered a staff member? If you are referring to clerical employees, please remember that they are also considered workmen entitled to all the protections of the Industrial Disputes Act. Even a person designated as a Manager is considered a workman if the predominant nature of their work is clerical.

At the time of retrenchment, compensation shall be equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months. The calculation of compensation is based on the date of appointment. If an employee has completed 240 days, they will be entitled to 15 days of retrenchment compensation, in addition to one month's notice or salary in lieu thereof, as if they have worked for one year. The 240 days include Sundays, off days, as well as festival or national holidays. If an employee has worked for more than one year, and the subsequent period of one year is less than six months, it will be counted as one year for the calculation of compensation. While making calculations, the period of notice is also to be taken into consideration.

Regards,
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