Dear member,
If your company is clarifying the terms and conditions of employment right at the stage of the recruitment and if the recruitment has been taking place with complete acceptance then where is the problem?
An appointment letter is a contract between an employer and employee under the provisions of the Indian Contract Act, 1872. But while executing this scheme, your company is not just relying on the appointment letter but going beyond and signing a legal agreement. Therefore, in the eyes of the law, there is no flaw as such.
Hopefully, the company is executing the scheme for everybody and the deductions are shown in the salary slip. In that case, there is nothing wrong per se.
As far as labour laws are concerned, the legal requirement is to pay the minimum wages. The labour laws do not look into the wages paid on and above the minimum wages. Nevertheless, experts in labour law are better persons to comments on this scheme.
From the Finance Point of View: - For the sake of convenience, suppose your company deducts Rs 1,000/- per month for 120 months (10 years). So on completion of the scheme, the company is liable to pay Rs 1,20,00 + Rs 1,20,000 = Rs 2,40,000/- For this amount, the simple interest is 10% and the compound interest is 7.17%
Your company could continue with this scheme because it had two advantages. The first one was the higher bank interests. After deducting the amount, if the company had opened a Recurring Deposit (RD) account, they would have got the interest from the bank more than 7.17% So anyway the company was not into the loss. The second benefit was from the employees who were not completing a tenure of 10 years. They were ready to forego the deducted amount. This also helped the company to continue with the scheme.
Nevertheless, bank interests have come down drastically. 7% interest is a distant dream. Therefore, in future, economically it may not be viable to continue with the scheme.
Thanks,
Dinesh Divekar