Is Asking New Hires for a Refundable Deposit to Curb Attrition Legal? Seeking Advice

I am working as a Hiring Manager for a manpower consulting firm in India. We have received a contract from a firm to provide them with a workforce. The primary reason the employer is outsourcing this contract is that they have a very high attrition rate. We want to ask the resources we hire to pay a certain amount as a deposit, which will be refunded when they leave the organization. This policy will be clearly stated in their offer letter. We would like to know if this practice is illegal. Suggestions are most welcome.

It is not an illegal practice and is used by many organizations, though it is not very ethical.

Concerns About Employee Deposits

What will happen if the resource pays the amount and the company is no longer around within 1-2 years? Does the resource have to struggle hard to reach the legal office and court to get back the money that was deposited?

As a manager, do you really like this practice? Even when you were new to your job, if an employer offered you the same, would you deposit that amount with any company?

A company can ask employees to work for free or pay less, especially as they are beginners, but I don't recommend all companies in the world to ask for funds from employees or resources in exchange for offering a job—we can often call it a bribe.

I don't know how many companies have returned it till now! Guys in the forum, do any of you have personal experience on this topic?

Dear Sir,

It is not illegal; however, there is a good solution to do this. While giving an offer, you can say that this amount is a loyalty or retention bonus, which will be paid on completion of, say, 1 or 2 years.

It is illegal because it is not legal. Which act permits an employer to force employees to lodge a monetary deposit? It is the employer who pays for work performed, on what account can the employer ask for a deposit. As long as the practice is not challenged, it will continue. But if it is challenged, such an employer may later repent.

Better try to change policies that encourage attrition. Analyze why there is attrition and act. Taking deposits, withholding educational certificates, and other actions are not good practices. Try to operate on ethical and competitive lines.

Instead of asking for a deposit, you may keep a part of the salary as variable pay, which can be paid at the end of a certain period, say 6 months or 12 months. This amount will only be paid at the end of such a predetermined period, and those who are serving the notice period shall not be eligible for the said variable pay. Hope this helps.

Instead of retaining any part of the salary, the company can have an incentive scheme directly correlated to the length of service. The frequency of the payment of incentives and the amount could be decided depending on the detailed analysis of the situation. But, be it retention of any salary/original documents or an incentive, you are only addressing the symptom but not the deeper malaise within. You may heed the advice of Shri Nathrao Sir.

Dear Member, it is illegal to take deposits, withhold educational certificates, or identity proofs for the sake of employment. These actions would fall under forced labor as per section 2 of the Bonded Labor System (Abolition) Act, 1976, and your agreement will be void.

For the removal of doubts, it is hereby declared that any system of forced or partly forced labor under which any workman is required to render labor or service in circumstances as mentioned is considered a 'bonded labor system'.

Please refrain from engaging in such activities. As suggested by other senior members, identify the root cause of the high attrition rate and implement countermeasures such as incentives and counseling to reduce attrition.

Asking for a security deposit or guarantee is not hindered by the Contract Labour Act or any other law if it is mentioned in the agreement executed between the employee and the outsourcing agency. In fact, all principal employers abide by the outsourcing agency regarding any loss or damage caused by the manpower provided by the outsourcing agency. An agreement itself puts an end to bonded labor practices because at the end of the agreement, both parties are free to act as they will.