What Are the Risks of Keeping Employees After Retirement and How Can We Manage Them?

Dear Sir,

We have a small-scale rubber industry in Ambad, Nashik. Our company has an HR policy, and the retirement age is 60 years. However, our management will continue the service of our employees after retirement.

Risks and Disadvantages of Continuing Employment After Retirement

As an HR professional, I have a question: What are the disadvantages and risks for the company if there is any mishap on the company premises?

Establishing a Retainership Agreement

Can we establish a retainership agreement after retirement to retain employees/workers?

Please guide me on the above issue and suggest the best practices followed by the company.

Regards,
Altaf Sayyed
HR Manager

Dear Altaf Sayyed,

The retention of employees to work after retirement is not a new practice. However, retired employees often work as consultants and are paid a retainership fee. This relationship falls outside the traditional employer-employee framework, and labor laws typically do not apply.

Nevertheless, in some companies, retired individuals continue as regular employees. Discussions regarding their PF and ESI deductions have occurred previously. You may want to check the relevant threads.

Your question concerns the risks involved in employing retired employees, particularly regarding potential mishaps. Retired employees are generally senior and are typically assigned office roles. They may visit the shop floor but usually do not work directly there. If you perceive a risk due to their work, it would be prudent to consider insurance for them.

Risk Assessment from a Management Science Perspective

If your company continues to rely on older employees, it may indicate a failure in replacement planning. Employee retirement is predictable, and yet, why were successors not groomed? Your query also highlights a reliance on individuals rather than processes, which is a significant risk. Your company should identify and groom successors.

Post-retirement placement can have another side effect. Retired employees might develop an inflated sense of self-worth and may boast about their indispensability. Being senior citizens, countering their arguments, even if irrational, can be challenging. If they start asserting their influence, it could create undercurrents of dissatisfaction among other employees.

I hope I have provided sufficient pros and cons of employing retired individuals.

Thanks,

Dinesh Divekar

Employing retired persons as retainers, consultants, or advisers after retirement is only feasible if their number is limited, and their role does not resemble that of a regular employee. Typically, they do not report for duty regularly and are engaged in specific specialized tasks. In such cases, a 10% TDS (Tax Deducted at Source) will be deducted, and they will not be eligible for PF (Provident Fund), ESI (Employee State Insurance), gratuity, bonus, etc. As a precaution, they should be covered under the Employee Compensation Act in the event of an accident or death.

I have a client who practiced hiring retired employees as retainers, treating them like other daily employees. TDS was deducted, and payments were made. One of these employees claimed gratuity after 7-8 years of post-retirement service. The case was referred to the Labor Directorate, where the DLC (Deputy Labor Commissioner) clearly stated that such employees are not retainers and are entitled to PF, ESI, gratuity, bonus, etc., as applicable. The rationale behind this decision was that they are considered regular employees and are not performing specialized tasks like true retainers, consultants, or advisers. The DLC even questioned why all employees couldn't be engaged as retainers instead of regular employees, a practice not accepted by laws.

Therefore, engaging a large number of retiring employees as retainers and deducting TDS may not be a prudent decision. It would be better to re-employ them as regular employees.

Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] www.usdhrs.in

Understanding Retainership vs. Employment

A retainer is not an employee who will come to your office regularly and spend regular time in the office. A retainer will not follow the leave rules of the organization and take approval for remaining absent from work.

If your purpose of keeping a retired person is to work like a regular employee, awarding retainership is not a possible option. Instead, you should give them an employment contract. You can appoint them under a fixed-term contract. However, if their salary is below Rs 21,000, they should be given ESI coverage. If they have started receiving a pension or are a PF pensioner, they can be excluded from the EPF.