Employer Deductions: What Should Be Done with Salary Cuts for Lateness or Absence?

Employer Deductions for Lateness or Absence

Employer, what should be done with the amount that was deducted from an employee's salary for being late or absent from work?

Hi,

Latecomer Penalties

In the normal course for habitual latecomers, after the third late arrival, 0.5 day leave may be deducted. In the absence of leave balance, some employers might opt for salary deduction. Many employers used to be very lenient, but when things are taken for granted, they are forced to implement such penalties. Their intention is not to recover money from employees, but rather to ensure that habitual lateness does not set a precedent for others.

For the day of absence, if you are deducting that day's salary, it is a deduction for the absence of work, and there is no amount 'gained' by the employer. It will reflect in the paysheet as such. It will be on this amount that you will pay ESI, PF, etc.

Fines for Late Coming

However, imposing a fine for late coming is different. Though it is reflected in the paysheet as a recovery from the employee, his salary for the day will remain the same. Such amounts, i.e., fines imposed, should be utilized for labor welfare activities of the company. If you do not have any such welfare fund, you can deposit it with the Labor Welfare Fund of the government.

To my understanding, pay not paid for a period of absence (not covered by duly admissible/sanctioned leave) is not the pay deducted, but the pay not drawn.

Yes, it is not a "deduction" from the gross salary, but the gross salary itself is arrived at after considering the day of absence or leave without pay.

Fines and Their Allocation

Fines, on the other hand, are deducted from the gross salary and, as such, all fines should be separately accounted for and kept for use for employee welfare activities only.

In certain states like Madhya Pradesh, the fine amount deducted from the salary or otherwise is to be deposited with the Labour Welfare Fund as per the statutory provisions in this regard.

As our seniors have already explained, there could be two contexts:

Not Earned

(a) Not Earned: It refers to an amount that an employee did not receive because they did not work during a particular period, such as when they are absent from work without leave or have not completed the required hours to receive full pay.

Deducted

(b) Deducted: It refers to an amount that is taken away from an employee's wages as a form of punishment or disciplinary action. It is a reduction in the amount of wages owed to the employee, typically due to a violation of company policy or employment agreement.

If it is scenario (a) Not Earned: The amount that you have not paid to your employees can be retained in the books of accounts.

If it is scenario (b) Deducted: The amount may be deposited to the Labour Welfare Fund [Depends on respective state's rules].

I agree with the observation of Mr. P. Venu.

Late coming and its implications

'Late Coming', if it becomes habitual, amounts to misconduct (maybe of a minor nature). The common practice to correct this is the deduction of any admissible leave at the credit of the employee concerned at one day in case of exceeding a certain number of late attendances during the month. In extreme cases, a fine may be imposed by the employer subject to the provisions of Section 8 of the Payment of Wages Act, 1936, if applicable. There is an enabling provision under Section 22-F of the Minimum Wages Act, 1948, to apply the provisions of the PW Act, 1936 by means of a notification.

Utilization of fine amounts

The fine amount thus collected shall be utilized for labor welfare measures as stated by Mr. Madhu, subject to the approval of the authority under the PWA, 1936, who is normally the Deputy Labor Commissioner for the area.