New Employee Retention Policy: Is Deducting 10% of Salary for 2 Years Fair?

New Policy for Employee Retention

I have implemented a new policy for the retention of employees to reduce the attrition rate for new hires.

1. Deduction of 10% of the basic salary for 2 years.
2. After the completion of 2 years, we provide the deducted amount with interest.
3. Employees are only eligible for this benefit after completing 2 years of service.

Please provide me with a draft for the implementation of this new policy.

On the one hand, there are organizations that pay a departing bonus to those who are unable to live up to the demands of the job or the organizational culture. On the other hand, your policy is to retain 10% of the salary for two years. The so-called retention strategy, and how effective it will be, remains to be seen. Though on the face of it, it looks appealing, it also raises suspicions as to whether these employees would be giving their best to the organization.

I deplore the tendency of quite a few querists to seek draft communication from the members of this forum without even bothering to put up a draft of it. The querist wants to avail the pro bono service rendered by the learned members of the group. Every communication in such matters has to be organization-specific, and without any idea of the organizational culture, drafting anything like this would be an adventure not to be sought.

An employer's effort to reduce the rate of employee turnover and increase the rate of retention cannot be faulted as long as it remains within legal parameters.

Salary and Employee Retention

Salary is the monetary consideration paid to the employee for services already rendered. Therefore, in my opinion, any deduction made from the current salary payable as collateral for remaining in the service of the organization for a certain fixed period in the future cannot be correct both ethically and legally. Even if it is done by way of one of the terms of the contract of employment or through the execution of an employment bond, it is void ab initio as such a term is opposed to public policy.

Uncertainty and Employer's Responsibility

Uncertainty is an inevitable aspect of life to which an organization cannot be an exception. So, if the employee demands a periodical additional payment at some fixed rate towards future retrenchment compensation in the event of the employer's inability to provide employment, will it be acceptable to any employer?

Positive Approaches to Employee Retention

It is always better to find positive ways and means for employee retention rather than banking upon the employee's vulnerable status as the weaker party to the contract of employment.

With due respect to the opinions of contributing members, am I to understand that you intend to hold your employees to ransom? Because that is what it sounds like. If your attrition rate is so high, perhaps it is time to look inwards and see what you, as an employer, can do. Remember, it is not always about money.

Food for thought, maybe?

Regards, Harsh

Wow, I have read some pretty disturbing stuff on this site over the last 15 years, but this just takes the cake. I guess your employees are all jumping for joy over this.

Just how insane are you? It's absolute madness.

Investigation into Attrition Problems

Please share with us the results of your investigation into the problems of attrition in your organization that led to such a disastrous policy. Or are we to take it that you did no investigation and just made an arbitrary decision?

First Rule of Business

First rule of business, find out the cause of the problem, then formulate a policy to deal with it. Invariably, you will find it is not the employees' fault but rather management's. This is going to come back and bite you on the backside big time.

I disagree with the deduction in salary to be given at a later date with interest. It is unfair to the employees and will have the opposite effect.

Also, consider employing staff for drafting rules and regulations.

Regards, Col. Suresh Rathi

My opinion/Suggestion on the above after going through the above discussion:

First of all

If the querist has data on attrition and reasons for the same, there is no information provided. It seems he laid down a policy and is seeking some sort of ratification or indirect approval in this forum for his action. I wish to say, any deduction from an employee's salary for retention will be a demotivating factor. Forget about retention; you may not attract unless your offer is substantial.

Secondly

Is it legal to deduct in the name of retention? You are saying if he works for two years with you, only repayment will be made. In case he has to leave for some reasons, then what will happen? Can your organization enrich unjustifiably?

Finally

As an HR person, your strategy must be towards motivating, encouraging, and enticing employees towards your organization, not by force or through these kinds of policies. Such policies can have disastrous results in the long run, affecting the organization as a whole.

Dear Friend, please think in a positive way. Your intention for retention is good, but the actions are not.

Alternative Employee Retention Strategies

Employees may be retained through methods other than imposing a fine with interest deducted from their take-home salary. Why not consider introducing an employee retention benefit scheme where you also contribute equally?

Again, this forum is not intended for drafting policies for anyone. You need to gather content from various sources to formulate your own draft, keeping in mind the prevailing laws in your area.

Regards, Saleem Raza Sr. Manager Finance

If the attrition rate is high, you need to identify and rectify the issues within your factory. The reasons may include salary, factory culture, machinery maintenance, handling, and treating employees, etc. Stopping or withholding salary in any way is unethical.

Regards, Sriramkumar Raghavan
System Coordinator

Ok, I find this post amusing, mainly due to the delusional nature of the person who posted and whoever designed the so-called policy.

Legal Concerns with Salary Deduction

1. The deduction from salary is illegal unless it meets the requirements specified in Sec 6/7 of the Payment of Wages Act (which this does not). Therefore, you should be prepared to be taken to court. You will need a lawyer fee policy more than this retention policy.

Employee Reactions to Salary Deduction

2. Every employee will simply consider that their salary is 10% lower and will immediately jump to the next employer paying standard rates, if they even bother to take up your offer. And if you are thinking of not disclosing the retention during interviews, be ready for employees walking out after joining and higher attrition with people leaving without notice.

Trust Issues with Retention Policy

3. Even if you design a policy within the confines of the law, what makes you think people will trust you to: a) give it after 2 years, b) survive 2 years, c) be an honest employer.

And I notice, as usual, the original poster has not bothered to reply or explain anything in response to the posts we have put. So I suggest to members, don't bother to engage in this discussion anymore.

They're almost opposite terms. Employee turnover is the proportion of your workforce who leave during a period of time (usually per year). Retention is the proportion of employees who stay.

Dear Member,

All learned members have given valuable inputs to your points. As an HR person, first of all, you need to study your organization well.

- Why does your organization exist?
- What is the EVP (Employee Value Proposition)?
- What is the strategy of your organization and your department's sourcing strategy?

Along with this, you also need to understand your competitors' strengths and the prospective target group's interests.

Apart from that, you need to find out about talent availability in the market and its strategic relevance to your organization.

I am very sure that once you do this, you will be in a position to frame your policy, which will result in a win-win situation.

If you need any help, please feel free to contact me at [Email Removed For Privacy Reasons], or you can message me on WhatsApp at [Phone Number Removed For Privacy-Reasons].

I am very thankful for the opportunity to share my views.

With Best Regards,
Prashant