Is It Legal for My Employer to Hold Two Months' Salary During My Notice Period?

Hello CiteHR members,

I am working with an LLP based in Mumbai. I resigned on the 6th of June 2024 with a 2-month notice period clause. As per the clause, my last working day is the 6th of August 2024.

I was informed that I will not receive my salary for the month of June and that both my salaries for June and July will be on hold as I am under a notice period and will be credited once the Full and Final Settlement is done.

As per my experience and understanding, even during the notice period, they cannot hold my salary for 2 months. They should pay me for the month of June in July as regular pay and for the month of July as a part of FNF, which should ideally be within 2 days of my exit upon FNF or at the max within 15 days.

I need some guidance if the 2-month salary hold is the correct/legal practice or how the rule book works.

Your help and advice are appreciated in advance.

Best Regards,
Pavan Mishra

If an employer is withholding two months of salary due to a two-month notice clause, it is important to understand both the legal and contractual framework governing such actions.

Legal Framework

Industrial Disputes Act, 1947: This act stipulates that an employee is entitled to be paid for their services. Any delay or non-payment can be challenged.

Payment of Wages Act, 1936: This act ensures timely payment of wages. Withholding wages without valid reasons can be considered a violation.

Shops and Establishments Act: Each state has its own Shops and Establishments Act, which governs employment conditions, including payment of wages. For Uttar Pradesh, you would refer to the Uttar Pradesh Shops and Establishments Act.

Contractual Framework

Employment Contract: Review the terms and conditions mentioned in your employment contract. The notice period clause and conditions for salary hold should be explicitly stated.

Company Policy: Check the company's internal policies regarding notice periods and salary holds. This information is usually available in the employee handbook or policy documents.

Common Practices

Notice Period Compliance: If you resign without serving the required notice period, the company may have a policy to withhold salary equivalent to the notice period not served.

Full and Final Settlement: Companies usually complete the full and final settlement process within 30-45 days after the last working day. This includes clearing any dues, pending salaries, and other benefits.

Steps to Take

Communicate with HR: Reach out to the HR department to understand the reason for withholding the salary and the timeline for the release of your dues.

Review Employment Contract: Go through your employment contract to see if there are any clauses that allow the employer to hold your salary under the notice period clause.

Legal Recourse: If you believe the withholding of salary is unjustified, you can seek legal advice. You may approach the labor commissioner or file a complaint with the labor court.

Conclusion

While employers may have policies to withhold salaries under certain conditions, it is crucial that these policies are in line with legal requirements and clearly communicated in the employment contract. If there is any discrepancy or unfair treatment, seeking legal assistance is advisable.

Dear Pavan Mishra,

Serving a notice period and the disbursement of salary are two independent matters. There is no reason for the employer to stop the salary. Employers are expected to create policies that fall within the purview of the prevailing laws and not invent new policies that suit their interests.

Anyway, I recommend you apply for the disbursement of the salary. Write in the application that you are facing financial difficulties due to the lack of your salary. To meet your domestic commitments, receiving your salary is sine qua non. Address the application to the Head of the HR Department. While submitting the application, verbally inform the HR professional that you have obtained advice from the renowned HR forum CiteHR, and the members of the forum have confirmed that there is no legal provision to withhold the salary.

If your application does not yield the desired outcome, escalate the matter and request an interview with the MD. However, regardless of the strong personality of the MD, do not be intimidated. Present your points assertively but not aggressively. Be polite but not submissive.

Most MDs are skilled negotiators, and they know how to trade off with the other party. Be prepared to make concessions from your side. As a compromise, you may agree to receive July's salary along with the full and final settlement. However, bargain firmly even for this concession. Do not agree easily.

If the MD remains intractable, return to this forum for further advice.

All the best.

Dinesh Divekar

Hi, Holding the salary (especially when the notice period is 2 months) is illegal. However, the reason behind this is that at times employees abscond from duty after receiving their salary to avoid the notice period, which results in the implementation of a salary hold policy during the notice period. Nevertheless, holding 100% of the take-home salary cannot be justified. To meet monthly commitments, at least 50% of the salary should be released. You can make a request to HR, stating that you have monthly commitments such as rent, EMIs, food expenses, etc. The practice of absconding after the salary is credited forces employers to implement these measures to safeguard their side.