Tag: Arbitration and Conciliation

Payment of Gratuity Act, 1972, is a significant legislation in India that ensures employees receive a gratuity upon retirement, resignation, death, or incapacitation due to an accident or illness. This Act was enacted to provide social security to employees post their employment period, fostering a sense of financial security and promoting long-term employment relationships.

Introduction and Objectives

The Payment of Gratuity Act, 1972, aims to provide a financial reward to employees for their service tenure. The primary objectives are:

• To provide a monetary benefit to employees on cessation of employment.
• To promote a sense of security and loyalty among employees by offering a terminal benefit.
• To ensure a systematic and standardized approach to the payment of gratuity.

Applicability

The Act applies to the following establishments:

• Factories: As defined under the Factories Act, 1948.
• Mines: As defined under the Mines Act, 1952.
• Oilfields: As defined under the Oilfields (Regulation and Development) Act, 1948.
• Plantations: As defined under the Plantations Labour Act, 1951.
• Ports: As defined under the Major Port Trusts Act, 1963.
• Railway Companies: As defined under the Indian Railways Act, 1890.
• Shops and Establishments: Employing ten or more persons on any day of the preceding twelve months.

Eligibility for Gratuity

To be eligible for gratuity under the Act, an employee must satisfy the following conditions:

• Continuous Service:

The employee must have rendered continuous service for at least five years. However, this condition is not necessary if the cessation of employment is due to death or disablement due to accident or disease.

• Type of Employment:

Employees covered under the Act include workers from the public and private sectors, excluding apprentices and persons holding civil posts under the Central Government and State Governments, who are governed by other gratuity rules.

Calculation of Gratuity

The gratuity amount is calculated based on the employee’s last drawn salary and the years of service rendered. The formula for calculating gratuity is:

Gratuity = (Last drawn salary) \times(15/26) \times(Number of years of service)

Where:

• Last drawn salary includes basic salary and dearness allowance.
• 15/26 represents 15 days of salary for each year of service, with the monthly salary divided by 26 (the number of working days in a month).

For example, if an employee’s last drawn salary is ₹30,000 per month and they have completed 20 years of service, the gratuity would be calculated as follows:

Gratuity = 30,000 × (15 / 26) × 20 ≈ ₹3,46,154

• Maximum Limit

The maximum limit for the gratuity payable under the Act is ₹20 lakh. However, the government may revise this limit from time to time.

Payment and Nomination

• Time Limit for Payment:

Gratuity should be paid within 30 days from the date it becomes payable. If there is a delay, the employer is liable to pay interest on the amount from the due date until the payment date.

• Nomination:

Employees are required to nominate a person or persons to receive their gratuity in the event of their death. The nomination can be changed anytime and must be submitted in a specified form.

Forfeiture of Gratuity

The Act provides for forfeiture of gratuity, either wholly or partially, under specific circumstances:

• Misconduct:

If the services of an employee have been terminated for any act, willful omission, or negligence causing damage or loss to the employer, the gratuity amount to the extent of the damage or loss can be forfeited.

• Riotous or Disorderly Conduct:

If the employee has been terminated for riotous or disorderly conduct or any other act of violence on their part, the gratuity can be wholly or partially forfeited.

• Moral Turpitude:

If the employee has been terminated for any act which constitutes an offense involving moral turpitude.

Grievance Redressal

If an employee or their nominee is not paid gratuity within the stipulated time or has any grievance related to the payment, they can make an application to the controlling authority (usually the Assistant Labour Commissioner) for resolution. The controlling authority has the power to hear and decide upon such cases.

Penalties for Non-Compliance

Employers who fail to comply with the provisions of the Act can face penalties, including:

• Fine: Up to ₹20,000.
• Imprisonment: Up to one year, or both.
• In case of non-payment: If an employer fails to pay the gratuity due to the employee, the controlling authority can direct payment along with simple interest at a specified rate.

Recent Amendments

Payment of Gratuity Act, 1972 has been amended several times to enhance its scope and benefits. Notable amendments are:

• Increase in Ceiling:

Gratuity ceiling was increased from ₹10 lakh to ₹20 lakh, aligning with the recommendations of the Seventh Pay Commission.

• Maternity Leave:

Maternity Benefit (Amendment) Act, 2017 increased the maternity leave to 26 weeks, which is also considered as continuous service for the purpose of calculating gratuity.

Employee Grievances refer to complaints or concerns raised by employees regarding their work, workplace conditions, or treatment by management. These grievances may include issues such as unfair treatment, discrimination, harassment, safety hazards, workload, compensation, or violations of company policies. Grievances can have a significant impact on employee morale, motivation, and productivity if left unresolved. Effective grievance management involves establishing clear procedures for employees to voice their concerns, promptly investigating grievances, and providing a fair resolution process.

Points to be Remembered When Handling a Grievance:

• Listen Actively:

Listen attentively to the employee’s concerns without interruption or judgment. Show empathy and understanding.

• Document Everything:

Keep detailed records of the grievance, including the nature of the complaint, parties involved, relevant dates, and any actions taken.

• Maintain Confidentiality:

Respect the confidentiality of the grievance process and only share information on a need-to-know basis.

• Act Promptly:

Address grievances promptly to prevent escalation and demonstrate commitment to resolving issues in a timely manner.

• Remain Impartial:

Maintain neutrality and objectivity throughout the grievance process, avoiding favoritism or bias towards any party involved.

• Investigate Thoroughly:

Conduct a thorough and impartial investigation into the grievance, gathering relevant evidence and speaking with all parties involved.

• Offer Support:

Provide support and guidance to the employee throughout the grievance process, offering access to counseling or mediation services if needed.

• Follow Company Procedures:

Adhere to established grievance procedures outlined in company policies or collective bargaining agreements.

• Communicate Clearly:

Keep the employee informed of the progress of the grievance investigation and any decisions or outcomes reached.

• Seek Resolution:

Work towards finding a mutually acceptable resolution to the grievance that addresses the employee’s concerns and restores workplace harmony.

Successful Pre-Requisites of Employee Grievance Handling:

• Clear Grievance Policy:

Establish a clear and well-defined grievance policy outlining the procedures for employees to raise concerns, the steps involved in the grievance resolution process, and the roles and responsibilities of all parties involved.

• Accessible Channels for Reporting:

Ensure that employees have accessible channels for reporting grievances, such as HR departments, supervisors, or designated grievance officers. Provide multiple avenues for reporting, including both formal and informal options.

• Trained Personnel:

Equip HR personnel, managers, and supervisors with training on grievance handling procedures, conflict resolution techniques, communication skills, and empathy training to effectively address and resolve grievances.

• Confidentiality Assurance:

Guarantee confidentiality throughout the grievance handling process to encourage employees to come forward with their concerns without fear of retaliation or breach of privacy.

• Prompt Response Mechanism:

Establish a prompt response mechanism to acknowledge receipt of grievances and initiate the investigation process in a timely manner. Communicate clearly with employees about the expected timelines for resolution.

• Fair and Impartial Approach:

Ensure that grievance handlers maintain a fair and impartial approach throughout the process, conducting thorough investigations, considering all evidence objectively, and reaching decisions based on merit and company policies.

Employee Grievances Handling Procedure:

• Submission of Grievance:

Employees submit their grievances through designated channels, such as HR departments, supervisors, or grievance officers. Grievances can be submitted verbally or in writing, depending on organizational policies.

• Initial Acknowledgment:

Upon receipt of the grievance, the organization acknowledges receipt and informs the employee of the next steps in the process. This acknowledgment may include providing information on the expected timelines for resolution.

• Preliminary Assessment:

HR personnel or designated grievance handlers conduct a preliminary assessment of the grievance to determine its nature, severity, and the appropriate course of action. This may involve gathering additional information from the employee and other relevant parties.

• Investigation:

If necessary, a formal investigation into the grievance is initiated. This may include interviewing the employee raising the grievance, gathering evidence, and speaking with relevant witnesses or parties involved.

• Resolution Attempt:

Once the investigation is complete, the organization attempts to resolve the grievance through informal means, such as mediation or direct discussions between the parties involved. If informal resolution is not possible, the organization proceeds to the formal resolution process.

• Formal Resolution Process:

If the grievance cannot be resolved informally, the organization follows its formal grievance resolution process outlined in its policies and procedures. This may involve convening a grievance committee or panel to review the case and make a decision.

• Decision and Communication:

A decision is reached based on the findings of the investigation and the grievance resolution process. The organization communicates the decision to the employee, including any actions to be taken or remedies provided.

• Follow-Up and Monitoring:

The organization follows up with the employee to ensure that the grievance has been satisfactorily resolved and to address any remaining concerns. HR personnel or designated grievance handlers may monitor the situation to prevent recurrence of similar grievances in the future.

• Documentation:

Throughout the grievance handling process, detailed records are kept of all communications, actions taken, and decisions made. This documentation ensures transparency, accountability, and compliance with legal requirements.

• Continuous Improvement:

The organization regularly reviews and evaluates its grievance handling procedure to identify areas for improvement and make necessary adjustments to enhance the process over time.

Challenges in Employee Grievance Handling:

• Volume of Grievances:

Managing a large volume of grievances can overwhelm HR departments and lead to delays in resolution, especially if resources are limited.

• Complexity of Issues:

Grievances may involve complex issues such as discrimination, harassment, or violations of labor laws, requiring thorough investigation and specialized expertise to resolve effectively.

• Conflicting Perspectives:

Resolving grievances often involves navigating conflicting perspectives and interpretations of events, making it challenging to reach consensus and satisfy all parties involved.

• Emotional Impact:

Grievances can be emotionally charged for both the employee raising the complaint and the individuals involved in the investigation, requiring sensitivity and empathy in handling the situation.

• Legal Implications:

Some grievances may have legal implications, such as potential lawsuits or regulatory investigations, requiring careful adherence to legal procedures and compliance with relevant laws and regulations.

• Retaliation and Fear:

Employees may fear retaliation or reprisals for raising grievances, leading to underreporting of issues and hindering the effectiveness of the grievance process.

• Maintaining Confidentiality:

Ensuring confidentiality throughout the grievance handling process can be challenging, especially if multiple parties are involved or sensitive information needs to be shared with stakeholders.

Measures to Avoid the Errors in Grievance Handling:

• Clear Policies and Procedures:

Establish clear and comprehensive grievance policies and procedures outlining the steps to be followed, roles and responsibilities of all parties involved, and timelines for resolution.

• Training and Education:

Provide training to HR personnel, managers, and supervisors on grievance handling procedures, conflict resolution techniques, communication skills, and relevant legal requirements to ensure they are equipped to handle grievances effectively.

• Promote Open Communication:

Encourage open and transparent communication between employees and management, providing multiple channels for employees to raise concerns and ensuring that grievances are addressed promptly and effectively.

• Confidentiality Assurance:

Ensure confidentiality throughout the grievance handling process, emphasizing the importance of privacy and non-retaliation to encourage employees to come forward with their concerns without fear of reprisal.

• Impartial Investigation:

Conduct thorough and impartial investigations into grievances, gathering all relevant evidence and perspectives before reaching a decision. Ensure that investigators are neutral and unbiased in their approach.

• Timely Resolution:

Prioritize prompt resolution of grievances to prevent escalation and minimize the impact on employee morale and productivity. Communicate clearly with employees about the expected timelines for resolution and provide regular updates on the progress of the investigation.

• Feedback Mechanisms:

Establish feedback mechanisms to gather input from employees on the grievance handling process, allowing them to provide feedback anonymously and make suggestions for improvement.

• Review and Evaluation:

Regularly review and evaluate the effectiveness of grievance handling procedures, identifying any recurring issues or areas for improvement and making necessary adjustments to enhance the process over time.

Employee Grievances refer to complaints or concerns raised by employees regarding their work, workplace conditions, or treatment by management. These grievances may relate to issues such as unfair treatment, discrimination, harassment, safety hazards, workload, compensation, or violations of company policies. Grievances can arise from real or perceived injustices and can have a significant impact on employee morale, motivation, and productivity if left unresolved. Effective grievance management involves establishing clear procedures for employees to voice their concerns, promptly investigating grievances, providing a fair and impartial resolution process, and taking corrective actions when necessary. Addressing employee grievances promptly and effectively is essential for maintaining a positive work environment and fostering trust and loyalty among employees.

Features of Employee Grievances:

• Individual or Collective:

Grievances can be raised by individual employees or groups of employees collectively, depending on the nature of the issue and its impact on the workforce.

• Concerns or Complaints:

Grievances can encompass a wide range of concerns or complaints, including issues related to working conditions, management practices, interpersonal conflicts, or violations of company policies.

• Formal or Informal:

Grievances may be communicated through formal channels, such as written complaints or grievance forms, or informally through verbal communication with supervisors, HR personnel, or union representatives.

• Varied Severity:

Grievances can range in severity from minor complaints to serious allegations of misconduct, discrimination, or safety hazards, requiring different levels of attention and intervention.

• Root Causes:

Grievances often stem from underlying issues such as perceived injustice, unfair treatment, lack of communication, inadequate policies, or ineffective management practices.

• Impact on Morale:

Unresolved grievances can negatively impact employee morale, job satisfaction, and productivity, leading to increased absenteeism, turnover, and disengagement within the workforce.

• Legal Implications:

Some grievances may have legal implications, such as violations of labor laws, employment contracts, or anti-discrimination regulations, requiring careful handling and adherence to legal procedures.

• Opportunity for Improvement:

Effectively addressing employee grievances provides an opportunity for organizations to identify areas for improvement, enhance communication, and strengthen employee relations, ultimately contributing to a more positive and productive work environment.

Reasons of Employee Grievances:

• Unfair Treatment:

Employees may feel unfairly treated due to favoritism, discrimination, or biased decision-making by supervisors or management.

• Poor Communication:

Lack of clear communication regarding policies, procedures, expectations, or changes within the organization can lead to misunderstandings and grievances.

• Workload and Stress:

Excessive workloads, unrealistic deadlines, or high-pressure work environments can contribute to employee stress and dissatisfaction, leading to grievances.

• Inadequate Compensation:

Employees may feel dissatisfied with their compensation, including wages, salaries, bonuses, or benefits, compared to industry standards or their contributions to the organization.

• Lack of Opportunities:

Limited opportunities for career advancement, skill development, or training can lead to frustration and grievances among employees seeking growth and development.

• Poor Working Conditions:

Issues such as unsafe or unhealthy working conditions, lack of necessary resources or equipment, or inadequate facilities can trigger grievances.

• Interpersonal Conflict:

Conflicts with colleagues, supervisors, or other team members can create tension and grievances within the workplace.

• Job Insecurity:

Concerns about job stability, layoffs, or uncertainty regarding the future of the organization can contribute to anxiety and grievances among employees.

• Violation of Policies:

Employees may file grievances in response to perceived violations of company policies, procedures, or ethical standards by management or colleagues.

• Disciplinary Actions:

Grievances may arise from disciplinary actions such as warnings, suspensions, or terminations perceived as unfair or unjust by employees.

Solutions of Employee Grievances:

• Establish Clear Grievance Procedures:

Develop clear and accessible grievance procedures outlining how employees can raise concerns, who they should contact, and the steps involved in the resolution process.

• Promote Open Communication:

Foster a culture of open communication where employees feel comfortable voicing their concerns and grievances without fear of retaliation. Encourage regular feedback sessions and dialogue between management and employees.

• Provide Training and Support:

Offer training programs for supervisors and managers on conflict resolution, effective communication, and handling employee grievances sensitively and professionally.

• Fair and Impartial Investigation:

Ensure that all grievances are investigated promptly, thoroughly, and impartially. Provide employees with the opportunity to present their grievances and evidence, and strive for fair resolutions.

• Implement Mediation or Arbitration:

Utilize mediation or arbitration services to facilitate discussions and negotiations between aggrieved employees and management, particularly for complex or sensitive grievances.

• Address Root Causes:

Identify and address the root causes of employee grievances, whether they stem from issues such as unfair treatment, poor communication, workload, or inadequate policies and procedures.

• Offer Alternative Solutions:

Provide alternative solutions or accommodations where possible to address employee grievances, such as adjusting work schedules, reallocating tasks, or providing additional resources or support.

• Follow-Up and Monitoring:

Follow up with employees after grievances have been resolved to ensure that they are satisfied with the outcome and to monitor for any recurring issues or concerns.

• Promote Accountability:

Hold managers and supervisors accountable for addressing employee grievances promptly and effectively. Establish performance metrics or feedback mechanisms to evaluate their responsiveness and effectiveness in resolving grievances.

• Continuous Improvement:

Regularly review and evaluate the effectiveness of grievance procedures and processes. Solicit feedback from employees and make necessary adjustments to improve the grievance resolution process over time.

Factories Act of 1948 includes comprehensive provisions for the welfare and safety of workers in factories. These provisions are designed to ensure a safe working environment and promote the well-being of employees.

Welfare Provisions

Washing Facilities

• Requirement: Factories must provide and maintain adequate and suitable facilities for washing for the use of the workers.
• Conditions: The facilities must be conveniently accessible and kept clean. Separate facilities should be provided for male and female workers if necessary.

Facilities for Storing and Drying Clothing

• Requirement: Arrangements must be made for workers to store their clothing and for drying wet clothes.
• Conditions: These facilities should be appropriately located and maintained to ensure they are hygienic and practical for workers.

Facilities for Sitting

• Requirement: Suitable arrangements for sitting must be provided for workers who are required to work in a standing position to the extent that it is feasible.
• Conditions: This is to ensure that workers have the opportunity to sit when their work allows it, reducing fatigue.

First-Aid Appliances

• Requirement: First-aid boxes or cupboards containing prescribed contents must be provided and maintained.
• Conditions: These should be readily accessible during all working hours. The Act specifies the minimum contents of the first-aid box and requires a certain number of boxes based on the number of workers.

Canteens

• Requirement: Factories employing more than 250 workers must provide and maintain canteens.
• Conditions: The canteen must be run according to prescribed standards regarding food quality, pricing, and hygiene. It should have proper dining and cooking facilities.

Shelters, Restrooms, and Lunch Rooms

• Requirement: Adequate and suitable shelters, restrooms, and lunch rooms must be provided for workers.
• Conditions: These facilities should be well-ventilated and maintained to ensure a comfortable environment for workers during breaks.

Crèches

• Requirement: Factories employing more than a specified number of women workers must provide crèches for children under the age of six.
• Conditions: The crèches should be adequately staffed and maintained, providing a safe and healthy environment for the children of workers.

Welfare Officers

• Requirement: Factories employing a certain number of workers (typically 500 or more) must appoint welfare officers.
• Conditions: Welfare officers are responsible for implementing welfare policies and ensuring compliance with the welfare provisions of the Act.

Safety Provisions

Fencing of Machinery

• Requirement: Dangerous parts of machinery must be securely fenced to prevent accidental contact.
• Conditions: The fencing must be of sound construction and regularly maintained to ensure effectiveness.

Work on or Near Machinery in Motion

• Requirement: Specific safeguards must be in place for workers required to work on or near machinery in motion.
• Conditions: Appropriate safety measures, such as protective gear and safety devices, must be provided.

Employment of Young Persons on Dangerous Machines

• Requirement: Young persons (aged 15-18) must not work on dangerous machines unless they have been fully instructed and are under the supervision of an experienced person.
• Conditions: This is to ensure that young workers are not exposed to undue risk.

Striking Gear and Devices for Cutting Off Power

• Requirement: Factories must have adequate devices for cutting off power to machines in emergencies.
• Conditions: These devices should be easily accessible and clearly marked.

Self-Acting Machines

• Requirement: Restrictions are placed on the operation of self-acting machines to prevent accidental injury.
• Conditions: Machines should be designed and operated in a way that minimizes risk to workers.

Casing of New Machinery

• Requirement: New machinery must be adequately cased to prevent accidental contact with moving parts.
• Conditions: The casing should be robust and regularly inspected for damage or wear.

Hoists and Lifts

• Requirement: Hoists and lifts must be of good mechanical construction, sound material, and adequate strength.
• Conditions: They must be properly maintained and periodically tested by competent persons.

Lifting Machines and Tackle

• Requirement: The safe working load must be clearly marked on lifting machines and tackle.
• Conditions: These should be tested regularly and maintained in good condition.

Revolving Machinery

• Requirement: Safety measures must be in place for machinery with revolving parts.
• Conditions: Guards, shields, or other protective devices should be used to prevent accidents.

Pressure Plant

• Requirement: Pressure plants must be properly maintained and regularly inspected to ensure safe operation.
• Conditions: Safety valves and other safety devices must be in place and functioning.

Floors, Stairs, and Means of Access

• Requirement: Floors, stairs, and means of access should be of sound construction and properly maintained to prevent accidents.
• Conditions: They should be kept free from obstructions and in good repair.

Pits, Sumps, Openings in Floors

• Requirement: Pits, sumps, and openings in floors must be securely covered or fenced.
• Conditions: These precautions are to prevent workers from falling into them.

Excessive Weights

• Requirement: Workers should not be required to lift excessive weights without proper aids.
• Conditions: Mechanical aids or assistance from other workers should be provided for heavy lifting.

Protection of Eyes

• Requirement: Adequate protection must be provided for workers exposed to risks of eye injury.
• Conditions: Safety goggles or shields should be used in processes involving hazards to the eyes.

Precautions Against Dangerous Fumes, Gases, etc.

• Requirement: Measures must be taken to prevent exposure to dangerous fumes, gases, and other hazardous substances.
• Conditions: Proper ventilation, exhaust systems, and protective equipment should be used.

Precautions Regarding the Use of Portable Electric Light

• Requirement: Safe use of portable electric lights is ensured by using voltage below specified limits.
• Conditions: These lights should be used in a manner that prevents electrical hazards.

Explosive or Inflammable Dust, Gas, etc.

• Requirement: Precautions must be taken to prevent explosions or fires from flammable substances.
• Conditions: Proper storage, handling, and usage procedures must be followed, along with the installation of safety devices.

Precautions in Case of Fire

• Requirement: Factories must have adequate fire-fighting equipment and trained personnel.
• Conditions: Fire exits and escape routes should be clearly marked and unobstructed.

Safety Officers

• Requirement: Factories employing a specified number of workers must appoint safety officers.
• Conditions: Safety officers are responsible for implementing safety policies and ensuring compliance with safety provisions.

Administration and Enforcement

The enforcement of the Factories Act, 1948, is primarily the responsibility of the State Governments. Factory Inspectors are appointed to ensure compliance with the Act’s provisions. They have the authority to inspect factories, examine records, and enforce safety and welfare standards.

Penalties

Non-compliance with the provisions of the Factories Act, 1948, can result in penalties, including fines and imprisonment for the employer. The severity of the penalties depends on the nature and extent of the violations.

Labour Turnover refers to the establishment of a relationship between the number of employees leaving during a period of time to the average number of employees during that period. It may also denote the percentage change in the labour force of an organisation.

A higher percentage of labour turnover will mean that employees are not stable and new employees join while old employees leave the organisation. A lower labour turnover, on the other hand, means that only small number of employees have come in and gone out of the organisation.

The extent of labour turnover can be judged with the help of following formulas:

(a) Separation Rate Method:

Labour Turnover = No. of workers separated during the period/Average number of workers during the period x 100. In this method the number of persons separating from the organisation in a particular period is counted and this figure is divided by the average number of workers in that period to find out labour turnover rate.

(b) Replacement Rate Method:

In this method the number of workers replaced, and not separated is taken into account. For example, if 100 workers have left the organisation in a particular period but 80 persons have joined on their place, the figure of 80 will be used for calculating labour turnover rate.

Labour Turnover = No. of persons replaced during the period/Average number of persons during the period x 100

(c) Labour Flux Rate Method:

Flux Rate Method takes into account both the separations and their replacements. The number of persons who have left the organisation and those who have joined their place are totalled for calculating labour turnover.

Labour Turnover = No. of workers separated during the period + No. of workers replaced during the period/Average number of persons during the period x 100

Any of these three formulas may be used for calculating labour turnover rate. Once this percentage is calculated with the help of a specific method, the same should be used again for finding out comparable position. Every organisation should try to keep labour turnover to the minimum because workers are an asset and they should be retained for as much period as possible.

Causes of Labour Turnover:

1. Personal causes
2. Unavoidable causes
3. Avoidable causes

1. Personal Causes:

Workers may leave the organisation purely on personal grounds, e.g.

1. Domestic troubles and family responsibilities.
2. Retirement due to old age.
3. Accident making workers permanently incapable of doing work.
4. Women workers may leave after marriage in order to take up household duties.
5. Dislike for the job or place.
6. Death.
7. Workers finding better jobs at some other places.
8. Workers may leave just because of their roving nature.
9. Cases involving moral turpitude.

In all such cases, labour turnover is unavoidable and the employer can practically do nothing to reduce the labour turnover.

2. Unavoidable Causes:

In certain circumstances it becomes necessary for the management to ask some of the workers to leave the organisation.

These circumstances may be as follows:

1. Workers may be discharged due to insubordination or inefficiency.
2. Workers may be discharged due to continued or long absence.
3. Workers may be retrenched due to shortage of work.

3. Avoidable Causes:

(a) Low wages and allowances may induce workers to leave the factory and join other factories where higher wages and allowances are paid.

(b) Unsatisfactory working conditions e.g., bad environment, inadequate ventilation etc. leading to strained relations with the employer.

(c) Job dissatisfaction on account of wrong placement of workers may become a cause of leaving the organisation.

(d) Lack of accommodation, medical, transport and recreational facilities.

(e) Long hours of work.

(f) Lack of promotion opportunities.

(g) Unfair methods of promotion.

(h) Lack of security of employment.

(i) Lack of proper training facilities.

(J) Unsympathetic attitude of the management may force the workers to leave.

Effects of Labour Turnover:

There must be some labour turnover due to personal and unavoidable causes. It has been observed by employers that a normal labour turnover, which is between 3% and 5%, need not cause much anxiety. But a high labour turnover is always detrimental to the organisation. The effect of excessive labour turnover is low labour productivity and increased cost of production.

This is due to the following reasons:

1. Frequent changes in the labour force give rise to interruption in the continuous flow of production with result that overall production is reduced.
2. New workers take time to become efficient. Hence lower efficiency of new workers increases the cost of production.
3. Selection and training costs of new workers recruited to replace the workers who have left increase the cost of production.
4. New workers being unfamiliar with the work give more scrap, rejects and defective work which increase the cost of production.
5. New workers being inexperienced workers cause more depreciation of tools and machinery. Due to faulty handling of new workers, breakdown of tools and machinery may also occur very often and hamper production.
6. New workers being inexperienced workers are more prone to accidents. Consequently, all costs associated with accidents such as loss on account of output lost, compensation for the injured workers, damage of materials and equipment due to accidents etc. increase the cost of production.

Reduction of Labour Turnover:

As already pointed out, normal labour turnover is advantageous because it allows injection of fresh blood into the firm. But excessive labour turnover is not desirable because it shows that labour force is not contended. Therefore, every effort should be made to remove the avoidable causes which give rise to excessive labour turnover.

Following steps may be taken to reduce the labour turnover:

1. A suitable personnel policy should be framed for employing the right man for the right job and giving a fair and equal treatment to all workers.
2. Good working conditions which may be conducive to health and efficiency should be provided.
3. Fair rates of pay and allowances and other monetary benefits should be introduced.
4. Maximum non-monetary benefits (i.e., fringe benefits) should be introduced.
5. Distinction should be made between efficient and inefficient workers by introducing incentive plans whereby efficient workers may be rewarded more as compared to inefficient workers.
6. An employee suggestion box scheme should be introduced whereby workers who suggest improvements in the method of production should be suitably rewarded.
7. Men-management relationships should be improved by encouraging labour participation in management.

In addition to the above steps, the personnel department should prepare periodical reports on the labour turnover listing out the various reasons due to which workers have left the organisation. The report should be sent to the management with the necessary recommendations so that corrective measures may be taken to reduce labour turnover.

Cost of Labour Turnover:

The cost of labour turnover can be divided under two heads:

(i) Preventive Costs.

(ii) Replacement Costs.

(i) Preventive Costs:

These are costs which are incurred to prevent excessive labour turnover. The aim of these costs is to keep the workers satisfied so that they may not leave the factory.

These costs may include:

1. Cost of providing good working conditions.
2. Cost of providing medical, housing and recreational facilities to workers.
3. Cost of providing educational facilities to the children of the workers.
4. Cost of providing subsidised meals.
5. Cost of providing other welfare facilities.
6. Cost of providing safety measures against working conditions.
7. Measures of security and retirement benefits such as pension, gratuity, employer’s contribution to provident fund and other measures over and above the compulsory legal provisions.

As “prevention is better than cure” preventive cost should be incurred to prevent excessive labour turnover. This cost of labour turnover should be apportioned among different departments on the basis of average number of employees in each department and justifiably treated as overhand.

If preventive cost is incurred for reasons of image or status of the employer or non-economical corporate goals, it may be debited to the Costing Profit and Loss Account. If preventive cost is incurred for a particular department, it may be taken as overhead of that department.

(ii) Replacement Costs:

These costs are associated with replacement of workers and include:

1. Cost of recruitment of new workers.
2. Cost of training new workers.
3. Loss of production due to

(a) Interruption in production, and

(b) Inefficiency of new workers.

4. Loss of profit due to loss of production.
5. Loss in fixed overhead cost because of less production on account of new inexperienced workers.
6. Wastage due to excessive spoilage on account of inept handling of machines, tools and materials by new workers recruited as a result of labour turnover.
7. Cost of accidents because of new workers having more proneness to accidents.

These costs should be distributed among different departments on the basis of actual number of workers replaced in each department and treated as overhead.