How Can a Company Avoid Salary Liability for Employees Not Working for Over 10 Months?

Background of Employment Situation

A manufacturing company employed two employees (who do not fall under the definition of workmen) at one of its distributor offices in Kolkata. Their salaries were paid by the company. Their duty was to sell the company's products to retailers in the distributor's territory. The company stopped paying their salaries in February 2020 because both employees were unable to recover dues from retailers, and they also stopped rendering services to the company. However, the company made a payment of Rs. 20,000 in July 2020 for their conveyance charges to follow up with retailers for payments. To date, the company has not issued termination letters to them, nor have they come to ask for their salaries.

Question: Precautionary Measures

What precautionary measures should the company take to ensure that the liability of paying salaries to employees who have stopped rendering services for more than 10 months does not arise in the near future?

Dear Manish, you have written, "Company stopped paying salary to them since February 2020 as both the employees were unable to recover the dues from Retailers and they also stopped rendering services to the Company."

Did you inform the employees that their salary would be linked to the recovery of the dues from the retailers? If yes, how did you inform them, and have they acknowledged the receipt of the letter? Regardless of the fault of the employees, you cannot stop 100% of their salary. The minimum wages should have been paid. Otherwise, by suspending the employees, they would have become eligible for subsistence allowance.

If the inability to recover the dues from the retailers was part of the Job Description (JD) of the employees, then you could have issued them a warning letter and thereafter a show-cause notice. After withholding their wages since Feb 2020, what correspondence has been conducted with the employees?

Furthermore, you mentioned, "Though the Company made a payment of Rs. 20,000/- in July 2020 for their conveyance charges to follow up with Retailers to make payment."

Was the payment of Rs. 20,000/- for reimbursement of the conveyance allowance or any other allowance? Did the employees raise the claim? Was it based on actual bills produced by them or just "on account"? In any case, the reimbursement claim cannot be linked to the monthly salary.

Question: What precautionary measures should the Company take to avoid the liability of paying salary to employees who have stopped rendering services for more than 10 months in the near future?

Reply: There seems to be a mistake on your side as well; however, I recommend ordering a domestic inquiry. I am uncertain whether the employees will participate in the inquiry. If the employees do not attend the inquiry, provide a fresh date. If they fail to appear even for the second time, consider taking disciplinary action, possibly leading to the termination of their services.

Ordering the inquiry, sending the letters via Speed Post, although bureaucratic, is necessary to generate proper records. Scanned copies of the letters can also be sent via email. Print and preserve them in the file.

Maintaining meticulous records is crucial for disciplinary procedures. Therefore, avoid taking shortcuts.

Thanks,

Dinesh Divekar

I believe there was a shortfall in maintaining and exercising control over the performance of employees and escalation for recovering the amounts from retailers, etc. In any case, the salary cannot be stopped, but disciplinary action can be initiated with proper care and records at hand.

Interaction with employees and initiating corrective actions and properly establishing SOPs would help in the future.

Precautionary Measures to Avoid Salary Liability

What precautionary measures should a company take to ensure that the liability of paying salaries to employees who have stopped rendering services for more than 10 months does not arise in the future?

Coordination between HR, Accounts, and the concerned department is crucial.

When an employee from the X department submits a resignation, their ledger/accounts and personnel records need to be flagged and monitored for the date of acceptance of the resignation and the actual date of exit.

HR and the Finance department must work out the employee's dues and inform both the individual and the finance department to avoid overpayment or underpayment.

Obviously, some slip-up or lack of system has allowed employees who are no longer working for the last 10 months to still be on the company's payroll.

A review of the system is needed to ensure employees are monitored well enough to record presence/absence/exit, etc.

Monitoring of dues to the company also needs specific attention—such as which dealer has not paid in full or has to pay some balance, etc.

A holistic review, keeping your working environment in mind, needs to be evolved.

Dear colleague,

Your two non-workman category employees employed at the Distributor's place have been absconding from duty for the last ten months, and you have stopped their salary. It is not known whether you have sent them any communication to report for work (at least three times) during this period. If not, do so now and inform them that if they do not report for work within seven days, they will be treated as having voluntarily abandoned the employment, and their names will be struck off from the muster roll. Since they don't fall into the category of 'workman,' as stated by you (although this point is contestable), the above action suggested should be an adequate precaution. Keep proper records of the communication and continue to hold all their legal dues.

In my view, there is no necessity for any disciplinary action except what is suggested above. Since ten months have elapsed without any communication from them, it is unlikely that they will revive their interest in continuing their employment. On record, they will continue to be treated as 'absconded employees'.

Regards, HR and Employee Relations Consultant