In case you are fired, is severance pay based on a month's usual salary or just the basic component?
severance pay, or compensation be — a month's full salary (including allowances) or just the basic salary? Further, is it legally mandatory for the employer to pay compensation for retrenchment?
Mehak Khanna, Partner at law firm Khaitan & Khaitan, says, «The amount of severance payable to an employee usually depends upon the law that applies to them and/or the terms of their employment contract. It is important to note that severance pay is not mandatory for all employees under the current labour laws.»
Currently, an employee can be governed under the central government's Industrial Disputes Act, the states' Shops and Establishments Acts or both.
As the labour laws in force are old, an employee may or may not be covered under these laws. Nitin Jain, Partner at Agama Law Associates, «There are many conditions under Industrial Dispute Act and States' shops and establishment act.
However, employment contract of an employee prevails for payment of severance pay, if he/she is not covered under any of the applicable laws.»
Severance pay as per Industrial Disputes Act, 1947
Khanna says, «In India, employment laws and regulations may vary depending on the specific circumstances and the industry in which the employee works.
Khanna explains further: „For instance, assume an employee is covered under the Industrial Disputes Act, 1947. As per this Act, every employee who has been in continuous service for at least one year is entitled to retrenchment compensation.
This compensation is calculated as 15 days of average pay for every completed year of continuous service or any part thereof in excess of six months. This act covers most employees/workers but has limited application to employees in managerial or supervisory roles.
Read more on economictimes.indiatimes.com
