Important News

Important News

EMPLOYEE TERMINATION OR INSOLVENCY?

EMPLOYEE TERMINATION OR INSOLVENCY?

Almost in all companies, we see HR or sometimes directors handle an employee appointed or termination.

Also, appointment and termination procedure is simple and almost the same in every company. It is also not possible to read the laws behind the same, but a slight mistake can lead to your company’s insolvency.

We all have clauses like probation, leave, maternity leave, deductions etc in our offer letter but have we ever thought, are they wise and good in the eyes of law or are we following correct procedure the implement?

Well! There are several rules governing the employment of a person working under you. Shop and establishment rules and Payment of wages rules are two main sets of rules for employment. Both govern the employment and termination of an employee.

A few rules as per Shop and establishment are as follows, and for every infringement, an employee can move to the Labour commissioner or at worst can file insolvency proceedings against you.

  1. Every person has the right to receive an offer letter.
  2. Payment of wages should be made within 10 days of the successive month.
  3. Your offer letter should contain the mode of payment.
  4. You can make Deductions only of the following:
  5. Fines
  • Absence
  • Loss or damages by an employee
  • Advances, loans, income tax, etc.

A very common practice of non-payment of wages or late payment of wages when an employee fails to meet its target is not only bad in the eyes of law but very fatal too.

Question: fatal? Insolvency? How?

Answer: An employee has two options for getting his wages, and the second option is far much devastating for a company.

(i)An employee can approach the labor commissioner for the realization of wages;

or

(ii) An unpaid or underpaid employee may approach National Company Law Tribunal (NCLT) and file insolvency proceedings against you. Yes! An employee has a right to do so as an “Operational Creditor”. This same is in the case for an employee who is given an “Unpaid maternity leave”.

So, how to correctly terminate and employee:-

  1. First, set up a committee and conduct proceedings properly.
  2. Secondly, deductions of fines can’t be more than 50% of his salary.
  3. Thirdly, No fines or deductions can be made without holding formal proceedings in your company.
  4. Full and Final payment has to be released within 2 days.
  5. In the case of a layoff, one-month advance salary and 15 days notice period wages have to be given.

So just to be safe and sound, do a little trick, ask your HR under which rules your offer letter terms and conditions are mentioned. If the answer is, immediate, Shop and Establishment, you are in good hands. Otherwise, you have to work hard on this too.

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