Can we employ office/production staff on fixe time employment for 2 year contract?

We are MSME. Can we employ any office or production staff on fixed-term employment for a two-year period? Can we withhold part of their salary as a security deposit for the contract period? Is it permissible under state government laws?

Dear Radhesham,

Yes, Fixed Term Contract Employment has legal sanction now under the existing Standing Orders Rules and the Code on Industrial Relations, 2020 subject to the conditions of the application of all conditions of service on par with regular employees of the establishment and entitlement to proportionate terminal benefits according to the length of service rendered on FTC.

No, you cannot hold part of the salary towards security deposit; rather, you can require the employee to deposit a reasonable fixed sum as a security deposit as a precondition for joining the services.

Dear Umakanthan,

If a company asks for a security deposit for two years, will the employer pay interest on the amount deposited by the employee at the time of separation from the company? Furthermore, is it a fair practice to request a security deposit from employees, and how should the employer account for it in their books?

Kindly shed some light on these questions.

Regards,
HR Revolution Services
Ghaziabad

Dear friend from HR Revolution Services,

To my knowledge, there is no legal bar to the collection of a security deposit from employees if the nature of the job requires handling cash and other valuables in the business transactions of the organization. Therefore, the fairness of such a practice depends entirely upon the nature of the responsibilities of the job position. Certainly, it will be mandatory to pay interest at the current bank rate when the contract comes to an end.

In the case of companies registered under the Companies Act, 2013, if I remember correctly, the collection of a security deposit is permissible under rule 2(1)(c)(x) of the Rules, 2014. However, it shall be a non-interest-bearing deposit not exceeding the concerned employee's annual salary. For further clarification, you may refer to the Companies (Acceptance of Deposits) Rules, 2014.

Regarding the present thread, if the intended security deposit is purely for the purpose of compelling the FTC employee to serve the entire tenure of the contract, I think it will not be fair, and it would also constitute an illegal deduction from salary under the Payment of Wages Act, 1936, and the Code on Wages, 2019.

Thanks, Mr. Umakanthan... :-)

Still, there is a difference between the term specified under Rule 2(1)(c)(x) - "Member" - and what the present thread is concerned about, which is the FTC (Fixed-Term Contract) of Production Staff.

As per my understanding (which may be wrong or incomplete), this clause will not be applicable to individuals who are in a contract of Employer-Employee relation for a fixed tenure. Instead of a security deposit, they can sign a bond with the employee.

Regards,

HR Revolution Services
Ghaziabad