Can We Legally Deduct Salary for Company Losses Without Written Consent?

Clarification on Salary Deductions for Company Losses

I require clarification regarding the recovery of deductions from the salary for company losses. If an employee who is receiving a salary of 20k per month causes a loss of Rs. 2 lakhs due to negligence, technical error, or any other reason, and accepts responsibility for the mistake verbally but refuses to provide written consent for the recovery of this amount from their salary as a full and final settlement.

Recovery Options and Legal Challenges

Can we recover the entire amount from the employee's salary or full and final settlement (i.e., salary/bonus/gratuity, etc.)? Can the employee challenge this issue in court claiming it is an illegal deduction since they have not agreed in writing to the deduction from their salary or full and final settlement?

Legal Consequences and Deduction Limits

If we deduct this amount from the employee's final settlement, could the company face legal consequences after the deduction? What is the maximum amount we can legally deduct from the employee's salary, and are there any specific limits imposed by the law? Please provide any relevant judgments related to this matter if available.

Thank you.

Not more than 75% of the salary if cooperative recovery is there; otherwise, 50%. In your case, you can deduct the amount subject to the above limit if the loss is due to damage of goods entrusted to the employee or loss of money directly attributable to his negligence or default.

Considerations for Recovering Damages from an Employee

You have raised a query on the recovery of damages from an employee. However, you need to consider the following pertinent questions:

a) Have you conducted an inquiry to assess the loss?

b) In the inquiry, has it been established that:

i) Was the work the employee did part of their job description?

ii) Was the employee given sufficient training to execute that work? Did they use the right tools and instruments?

iii) Were the SOPs in place for the execution of work? If the SOPs were in place, were these communicated to the employee?

iv) Did the employee violate the SOP despite proper communication to them?

v) Is it a supervisory failure, but the employee has been made a scapegoat?

vi) What safeguards were in place to avoid the loss to the company?

Acceptance of *actus reus* by an employee is not a ground for initiating the recovery of damages. An inquiry should focus on the incident and not on the person. The inquiry should help in improving your systems and processes. What if you focus on the person but do not take preventive measures to avoid repetition of the incident? In that case, you could end up punishing another employee in the future.

Factors to Consider When Awarding Punishment

Lastly, about awarding the punishment. This is beyond the scope of the inquiry. If the guilt of the employee is proved, then you need to take into account the following factors while awarding the monetary punishment:

a) Age of the employee

b) Experience in years of the employee

c) Monthly take-home salary of the employee

Irrespective of the quantum of damages, while recovering the damages, you can recover a small percentage of the employee's salary.

Thanks,

Dinesh Divekar