When you're considering terminating an employee hired through an Employer of Record (EOR), understanding the procedures for notice periods and severance packages is crucial for ensuring compliance with local labor laws, maintaining professionalism, and protecting both employer and employee interests. Here's a detailed look at how these elements are typically managed:
Notice Periods in an EOR Arrangement
Legal Requirements
In India, notice periods are legally enforceable and vary based on the employee's role and the company's policy:
- Standard Notice Period: Typically, notice periods for freshers are 30 days, while mid-level and senior roles can range from 60 to 90 days
- State-Specific Regulations: Some states have specific requirements. For example, in Maharashtra, employees with more than a year of service must receive at least 30 days' notice, while in Delhi, a 30-day notice period is required for employees with more than three months of service.
Handling Notice Periods
- Formal Notice: The EOR issues a formal written notice to the employee, outlining the reason for termination and adhering to the notice period required by the employment contract5.
- Pay in Lieu of Notice: If the employer wishes to terminate the employee immediately, they can offer pay in lieu of notice, compensating the employee for the notice period they would have otherwise worked5.
- Negotiable Notice Period: In some cases, the notice period can be negotiated between the employer and the employee, allowing for a mutually agreed-upon duration1.
Severance Packages in an EOR Arrangement
Eligibility Criteria
Employees become eligible for severance pay under specific circumstances:
- Layoff: If an employee is laid off for 35 consecutive weeks or more, or if all employees are laid off due to permanent business closure3.
- Constructive Dismissal: If an employee resigns due to constructive dismissal by the employer3.
- Bankruptcy: If the company goes bankrupt, leading to employee termination3.
Calculation and Components
Severance Pay Calculation: The severance package typically includes:
- Outstanding regular pay.
- Additional payment based on months of service rendered.
- Payment for unused leaves.
- Payment in lieu of notice period.
- Medical or health insurance.
- Continuation insurance benefits.
- Employee stock options.
- Retirement benefits/pension plans.
- Unemployment benefits (if termination was due to reasons beyond the employee's control).
Legal Compliance: The Industrial Disputes Act, 1947, and the Payment of Gratuity Act, 1972, govern severance pay in India. Employees with continuous service of at least one year are eligible for retrenchment compensation, calculated as 15 days' average pay for every completed year of service or any part thereof in excess of six months
Employer Obligations
Timely Payment: Employers must ensure that severance payments are made promptly to avoid disputes.
Documentation: Employers must document the reason for termination, whether it's redundancy, misconduct, or poor performance, to serve as evidence in case of disputes.
Compliance: Throughout the termination process, employers must ensure compliance with the Industrial Disputes Act and other relevant labor laws.
How Wisemonk Can Help Manage Notice Periods and Severance Packages
As a leading EOR provider in India, Wisemonk offers comprehensive support to streamline your employee termination process:
- Expert Immigration Guidance: Our team has in-depth knowledge of Indian visa regulations, ensuring that your employees receive the appropriate visas for their roles.
- Documentation Management: We streamline the document collection process, ensuring all necessary paperwork is gathered and verified promptly.
- Technology-Driven Solutions: Our advanced platform automates document tracking, real-time application status updates, and secure data management, reducing administrative delays.
- End-to-End Support: From visa application to FRRO registration, we handle every step of the process, ensuring compliance and minimizing legal risks.
- Cultural and Legal Expertise: Our understanding of Indian bureaucratic processes and cultural nuances ensures a smooth and efficient visa application experience.
By partnering with Wisemonk, you can ensure that your employee terminations are handled professionally, legally, and efficiently while maintaining compliance with Indian labor laws and protecting both employer and employee interests.
