Is It Legal to Hold January Salary If an Employee Resigns in February?

An employee resigns on the 1st of February, and her January salary has not been paid and has been put on hold. The payday is scheduled for the first week of every month. Is this legal?

Salary Payment Obligations

Salary for the period the employee has worked cannot be put on hold. It should be paid. If the employee is under any legal obligation to give notice before resignation, then the salary payable can be adjusted against the notice pay, but only with the consent of the employee.

Legal Obligations Under the Industrial Disputes Act

If the employee is covered under the scope of the Industrial Disputes Act, legally, they have no obligation to serve notice if they want to leave the company. As such, holding their salary is not an option to recover notice pay.

Dear Madhu,

If the salary is being held after resignation and not released in the subsequent payable month, under which Act is the employer legally committing non-compliance?

Payment of Wages Act

The Payment of Wages Act provides for the payment of salary within 7 days of closing the wage month. The salary is due after the employee has worked or labored for the prescribed month. Therefore, non-payment of wages subsequent to resignation is questionable. The Act does not allow an employer to hold the salary of a resigned employee for any reason.

Industrial Disputes Act

The Industrial Disputes Act provides that in order to terminate an employee, the employer should give notice. The Act also states that if no notice is served, the employer should give salary in lieu of that notice. However, nowhere in the Act is it mentioned that an employee should also give prior notice or pay salary or compensate the employer by means of paying one month's salary in lieu of notice.

However, the above will not apply to employees who have functional responsibilities of managers. Please note that it applies to managers by function and not by designation.

Payment of Wages and Notice Periods

Payment of wages will only be applicable for wages below 24k. What about employees not covered under the act?

The notice period mentions a 30-day/15-day notice period clause but is silent on the payment of notice period for more than 30 days, for example, 90 days.

Addressing Managerial Level Issues

Most issues arise at the managerial level. How can we address this under labor law or statutory law?

Please guide.

Non-Payment of Wages and Legal Implications

It is true that non-payment of wages for an employee whose salary exceeds Rs 24,000 does not fall under the purview of the Payment of Wages Act. However, if the person concerned is a workman under the Industrial Disputes (ID) Act, the appropriate authority can initiate action against the employer under the relevant provisions of the ID Act.

Managerial Employees and Service Conditions

If the employee is a manager by function, they will be outside the purview of the ID Act, and you can establish the service conditions for such an employee. This may include payment of salary in lieu of any unserved notice period. However, if the employee is not a manager and lacks managerial rights and duties, regardless of the salary received, you cannot impose any restrictive clauses such as notice or payment in lieu of notice.

Addressing Managerial Level Issues

If the issue involves a managerial level problem, there is no obstacle in proceeding with the recovery.