termination of employment in India: laws & severance policies

Legal Grounds for Termination of Employment in India

In India, employment termination can be executed "at-will" or without cause; primarily determined by the terms of the employment agreement, provided that adequate notice and severance pay are given. Compliant termination include voluntary termination by the employee, mutual agreement, contract expiration, and a unilateral decision by the employer for the following reasons:

 
• Misconduct: Engaging in theft, fraud, dishonesty, willful insubordination, or disobedience.
 
• Willful Damage: Causing deliberate damage to or loss of the employer's goods.
 
• Bribery: Accepting or offering bribes or any illegal gratification.
 
• Absenteeism: Being absent without leave for more than ten days.
 
• Habitual Late Attendance: Regularly arriving late to work.
 
• Disorderly Behavior: Engaging in disorderly conduct during working hours.
 
• Negligence: Habitual negligence of work duties.
 
• Inefficiency/Poor Performance: Consistent underperformance, especially after implementing performance improvement plans.
 
• Loss of Confidence: Situations where the employer justifiably loses trust in the employee's integrity or abilities.
 
• Abandonment of Employment: Continuous absenteeism without valid reasons.

Employment Laws and Severance Policies in India

When it comes to terminating employment in India, understanding the legal obligations regarding severance pay and contributions is essential. Below is a detailed overview of the key considerations for both employers and employees.

Notice Period in India

The notice period requirements in India vary based on the type of employee and the specific state legislation:

 
• Workmen: Under the Industrial Disputes Act, 1947, 'workmen' are entitled to a notice period ranging from 30 to 90 days, depending on the circumstances. In certain sectors, such as manufacturing units, plantations, and mines with 100 or more workmen, 'termination for convenience' requires government approval; in other sectors, it requires only government notification.
 
• Non-Workmen: For employees not classified as 'workmen,' the notice period is typically governed by the terms outlined in their employment contracts.
 
• State Variations: Some state laws impose additional requirements, such as Maharashtra’s 30-day notice period for employees who have been with the organization for more than a year.
 
• Exceptions: In cases of gross misconduct, employers may terminate employees without any notice, provided a proper inquiry has been conducted.

Severance Pay in India

Employees may be eligible for severance pay depending on the cause of termination:

• Redundancy: 15 days' average salary for each year of service or part thereof exceeding 6 months
• Misconduct-based termination: No entitlement to notice pay or severance pay
• Dismissal: Paid termination benefits, including accrued leave, gratuity payment (for employees with more than 5 years of service), payment in lieu of notice (if no notice is given), statutory bonus payment, and other amounts specified in the employment contract

Employees classified as 'workmen' under the Industrial Disputes Act, 1947, who have completed at least one year of continuous service, are entitled to severance pay upon termination due to reasons other than disciplinary action. Severance pay for non-workmen is typically governed by employment contracts or company policy.

Probation Period in India

In India, probation periods typically last 3 to 6 months, depending on the employee's role and seniority. Employers can terminate employment during probation without notice unless the contract states otherwise.

While a 3-month probation is suggested by the Industrial Employment Act of 1946, it's not mandatory, allowing employers to decide based on job needs. This practice is widely used to assess employee performance. Some Indian states also include probation provisions in local labor laws, adding complexity to employment rules.

Process for Ending Employment in India

 
• Review the employment contract for termination clauses.
 
• Conduct an inquiry in cases of alleged misconduct.
 
• Provide the appropriate notice period or severance pay.
 
• Calculate the final settlement, including unpaid wages and benefits.
 
• Issue a termination letter specifying reasons and the effective date.
 
• Ensure all necessary documentation is provided to the employee.

Employee Rights During Termination in India

Unfair Dismissal Protections

Unfair dismissal occurs when an employee is terminated without a valid reason or due process. Employees, especially 'workmen,' have protections under the Industrial Disputes Act and can contest termination in labor courts.

Grievance Procedures

Employees can file complaints regarding termination through internal grievance mechanisms or escalate the matter to labor tribunals.

Final Pay and Benefits

Employers must settle final dues, including unpaid wages, bonuses, and accrued leave. Payments should be made within company policy timelines or applicable labor laws.

What Termination Documentation Is Required by Law?

Indian law requires employers to provide key termination documents:

 
• Termination Letter: Official notice stating reasons for termination.
 
• Final Payslip: Breakdown of final salary, deductions, and benefits.
 
• Experience Certificate: A document confirming employment details.
 
• Tax Documents: Relevant tax forms, such as Form 16.

How to Stay Compliant as An Employer in India

Expanding your workforce across international borders is an exciting step, but it can be a logistical nightmare to hire and pay employees in different countries. And if you need to terminate employment, it’s critical to adhere to local compliance laws. That’s the advantage of using a trusted Employer of Record like Playroll. They can:‍

• ‍Handle international compliance: Different countries each have their own federal and local laws governing employee rights. An EOR helps ensure that you are compliant with the unique set of laws for any country in which your company operates. 
• ‍Run payroll for your global team: An EOR will act as your payroll provider, paying your employees on your behalf in the local currency. The company will also have in-depth knowledge of local tax codes, regulatory practices, and everything else that goes into managing global payroll.
• ‍Scale your team anywhere: Legally hire and swiftly onboard new hires in 180+ regions without the need for entity set-up by leveraging Playroll's infrastructure, so you can freely explore new markets and focus on growth.