How Do I Legally Phrase a Deduction and Contribution Clause in an Appointment Letter?

Respected Seniors, I wanted to draft a clause in the appointment letter which indicates that "there should be a 1k contribution from the Company and a 1k deduction from the employees' in-hand salary for a period of 1.5 years. If the employee continues to work for 1 year in the Company, the consolidated benefit will be provided to him." Now, how should I frame this sentence legally? Please correct me if I am wrong.

Dear Neha,

What is the validity of this deduction?

I mean to say under which provision can you make this deduction? I doubt whether the Payment of Wages Act approves this deduction. Therefore, deduct the amount but do not mention anything in the appointment letter about this deduction. After 18 months, pay the employee Rs 36,000/- as a joining bonus. However, if the employee quits the employment before 18 months, then he/she forfeits the joining bonus.

Thanks,

Dinesh Divekar

Neha,

Primarily, the deduction is illegal. Under the Payment of Wages Act (and in the new Code on Wages Act), you cannot make such arbitrary deductions, even if the employee agrees. The deductions are specified under sections 6 and 7, and you can only deduct what falls under that category. If you can put it under one of those categories, then you can deduct it.

The fact that you are contributing an equal amount is immaterial if the employee does not get the money. So, this clause would be allowed if you were not forfeiting the money if he does not work for 18 months. Even if you were not forfeiting the amount, it would still not be allowed as the ₹1,000 would be an illegal deduction.

If you still want to do it, put it under CTC but do not put it under gross wages. Instead, lower his actual salary by ₹1,000 a month and give the full ₹36,000 as a retention bonus at the end of 18 months.

@Dinesh Sir, I hope you agree with this.