Can Companies Legally Hold Your Salary During the Notice Period? Seeking Advice on Labor Laws

Company Policy on Notice Period Salary Hold

As per company policy, "While on notice period, the last 2 months' salary will be on hold." For example, if an employee is supposed to serve a 90-day notice period, then the salary for the first month will be paid, and the remaining 2 months will be paid after 45 days of the last working date. This means that practically, the employee will have to survive without salary for 60 days plus 45, i.e., 105 days.

Legal Provisions for Salary Release

Is there any provision under labor law where an employee can approach a labor officer or the relevant authority to seek help for the release of salary? Can a company hold salary for 60 days just by stating it is the company policy?

Thanks,
Prashant

Dear Prashant,

What is the nature of your industry? What is your finished product? In which state of India do you belong?

On completion of the month, wages and salary of each employee have to be disbursed by the 7th or 10th of the next month, depending on the total employee count. These are provisions of the Shops and Establishment Act or Factory Act. Therefore, the submission of a letter of resignation is no excuse for non-payment of wages.

While organizations are free to establish any policy to run their business, the policy should not contravene the laws of the land. Against this backdrop, you may bring to the notice of your HR the violation of either the Shops and Establishment Act or the Factories Act, as applicable. Submit an application to HR to release the salary. Inform them that the non-payment of wages is causing hardship for you. There are certain financial obligations that need to be met every month.

If HR does not reconcile, then you may escalate the matter and bring it to the notice of the MD. If the MD also remains intransigent, then you have the option of approaching the Labour Officer under whose jurisdiction your company falls. Explain the problem to him and take along with you evidence of your employment with the company, correspondence on the subject, etc. Hopefully, the Labour Officer is expected to resolve the matter.

When approaching the Labour Officer, there lies a catch too. As Labour Officers are government-appointed authorities, defying them may not be possible for your employer, but he may get incensed and create some other problem to terminate your services. If not termination, then he may create an issue with background verification. Therefore, deliberate carefully on how to solve this problem.

General Comments: As long as an employee does not resign, everything is fine. However, as soon as he/she submits a letter of resignation, the employer starts looking at this person suspiciously. This suspicion could arise from the fear that the resigning employee could cause trouble or inflict damage to the company property. As a result, the employer withholds the salary. This is the height of mistrust. While there may have been 1 or 2 instances where employees took advantage of the employer, creating a blanket rule on non-payment of wages is certainly ridiculous. On one hand, these very employers, who nowadays we call "entrepreneurs," aspire to become another Ambani. Yet, at the ground level, they behave as if they are running a shop in some obscure village. We expect our Prime Minister to grow our country, but what can we expect from local businessmen like this, who mostly belong to the tribe that claims business runs in their DNA!

Thanks,

Dinesh Divekar