I have an Export Company that employed Two Persons in the office as an accounts executive drawing a salary of Rs 53K and a Merchandiser drawing a salary of 60K p.m They have been in continuous service since 2000. Now because of no orders we wish to pay them off. so my question is do we have to pay them retrenchment compensation apart from gratuity? Thanks Kapoor

Ans: Dear Kapoor,

Thank you for reaching out with your query regarding the termination of employment for your employees. Let’s delve into the specifics of retrenchment compensation and gratuity:

Gratuity:
Gratuity is a statutory benefit provided to employees who have rendered continuous service for not less than five years.
It becomes payable upon:
Superannuation,
Retirement or resignation, or
Death or disablement due to accident or disease.
The calculation for gratuity is based on 15 days’ average pay for every completed year of continuous service1.
Retrenchment Compensation:
Retrenchment compensation is intended to provide relief for the sudden and unexpected termination of employment.
It is governed by the Industrial Disputes Act, 1947.
Conditions precedent to retrenchment include:
Providing one month’s notice (or payment in lieu of notice) to the employee.
Paying compensation equivalent to 15 days’ average pay for every completed year of continuous service (or any part thereof in excess of six months).
Serving notice to the appropriate government authority1.
Eligibility:
Since your employees have been in continuous service since 2000, they meet the criteria for both gratuity and retrenchment compensation.
Therefore, you would need to provide both benefits to them.
Important Note:
The retrenchment compensation paid for the past year cannot be set off against gratuity.
Once an employee is terminated and eligible to receive gratuity, it should be paid separately, without adjusting any prior payments made while the employee was still in service.
In summary, you are required to pay both retrenchment compensation and gratuity to your employees. If you have any further questions or need additional clarification, feel free to ask.