The rules on severance pay in detail
An employer will first need to determine which employees are ‘workmen’ under the Industrial Disputes Act (‘ID Act’) and which employees are ‘non-workmen’.
A workman would generally be any employee engaged to do manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, but would not include an employee engaged in:
- a managerial or administrative capacity; or
- a supervisory capacity, drawing wages of more than INR 10,000 per month.
It is the actual job of the employee (and not the job title) that is critical in this.
The termination of a workman who has completed one year (i.e. 240 days) of employment on grounds other than misconduct or the expiry of a fixed term employment contract, is treated as retrenchment (i.e. redundancy) under the ID Act. The employer must:
- provide one month’s written notice to the ‘workman’ with the reason for termination or pay 30 days wages in lieu of notice (or if the employment contract provides for longer notice, this would prevail);
- pay retrenchment compensation (i.e. severance), calculated as 15 days’ wages for each full year, or more than six months, worked; and
- serve notice of the retrenchment on the State labour authorities.
Non-workmen are not entitled to statutory severance payment.
Author: Kochhar & Co.
Date: December 2018