Retrenchment Benefits for Short Contracts: How Do I Calculate the Right Amount?

For calculating retrenchment benefits for a contract of 1 year and 11 months, if a worker works for 240 days in the first year and 230 days in the next 11 months, how much should I pay for their retrenchment benefit?

Retrenchment Compensation for Fixed-Term Employment

If the contract of employment is for one year and 11 months, what is the need for calculating retrenchment compensation? This is a fixed-term employment, right? Then termination of employment on the expiry of the term shall not be considered retrenchment, and no compensation becomes payable.

Compensation for Early Termination

If the case is otherwise, and it is termination of employment before the fixed term, then compensation has no relation to the number of days worked. Compensation will be equal to 15 days' wages for every completed year of service. If the completed year of service has a fraction of more than 6 months, it should be rounded off to one year. It is a settled law that each year, 12 months should have 240 days. If the calculation is made for 11 months, it should be taken as 220 days. Therefore, if the employee had worked for 240 days in the first year and 230 days in the second year, he will be entitled to compensation equal to two years. The compensation amount, as mentioned, would be 15 days' average wages for each year, or 30 days' wages for two years.

It's fair if the retrenchment compensation is calculated as if for 2 years, i.e., 15 days' salary for two years equals 1 month's salary. In addition, if there is a provision for notice pay (1 month) and leave encashment, then they should also be paid. The new 'Code on Industrial Relations' will apply.

Examine the Industrial Relations Code

By amalgamating three labor laws into the Industrial Relations Code, the Central Government has taken steps to safeguard the interests of trade unions as well as the workers. In this Code, all possible measures have been taken for industrial units and workers to prevent disputes from arising in the future Industrial Relations (IR) Code, 2020.

Benefits under the Atal Bimit Vyakti Kalyan Yojna

In the case of job loss, a worker will receive benefits under the Atal Bimit Vyakti Kalyan Yojna. Under this scheme, a worker in the organized sector who loses their job receives financial aid from the Government. This is a type of unemployment allowance, the benefit of which is available to workers covered under the ESI Scheme. At the time of retrenchment, a worker would be provided with 15 days' wages for re-skilling. The wages would be credited directly into the bank account of the worker to enable them to learn new skills.