Respected Seniors,
I have a private limited manufacturing company started 35 years back by my uncle. I took over the management 4 years back. Our labour costs are increasing esp over the last 5 years. We follow all rules, we pay double OT, VDA, PF, ESI etc.
Now since the labour costs are increasing, our company is unable to pay salaries for the last few months. Ultimately we found that retrenchment is the only option in reducing our costs. I was looking at various strategies to retrench our labour and I found your forum very informative.
Please tell me the retrenchment costs in the following options which I found so far ..
Option 1: Change the major manufacturing to a different location outside our state so that few workers will drop during this course and operate parallel plants as a part of contingency.
Option 2: Completely close the existing set up and reopen in the same location under the same company name.
Option 3. Completely close the existing set up and reopen in a different location under the same company name.
Option 4. Transfer the management - Outsourcing
Please advise me the pros and cons (including retrenchment costs) in each option (specific to labour issues) mentioned above? Please also advise me if there are any other options available?
Could you also provide the details of consultants/advocates who are experts in IDA and has experience in the above options.
I shall be grateful and looking forward to your valuable inputs.
Thanks for opening a forum like this.
Best Regards,
G V Krishna Reddy
From India, Bangalore
I have a private limited manufacturing company started 35 years back by my uncle. I took over the management 4 years back. Our labour costs are increasing esp over the last 5 years. We follow all rules, we pay double OT, VDA, PF, ESI etc.
Now since the labour costs are increasing, our company is unable to pay salaries for the last few months. Ultimately we found that retrenchment is the only option in reducing our costs. I was looking at various strategies to retrench our labour and I found your forum very informative.
Please tell me the retrenchment costs in the following options which I found so far ..
Option 1: Change the major manufacturing to a different location outside our state so that few workers will drop during this course and operate parallel plants as a part of contingency.
Option 2: Completely close the existing set up and reopen in the same location under the same company name.
Option 3. Completely close the existing set up and reopen in a different location under the same company name.
Option 4. Transfer the management - Outsourcing
Please advise me the pros and cons (including retrenchment costs) in each option (specific to labour issues) mentioned above? Please also advise me if there are any other options available?
Could you also provide the details of consultants/advocates who are experts in IDA and has experience in the above options.
I shall be grateful and looking forward to your valuable inputs.
Thanks for opening a forum like this.
Best Regards,
G V Krishna Reddy
From India, Bangalore
Hello G V Krishna Reddy,
You haven't mentioned much about the TYPE of workforce you currently have--since the options REALISTICALLY open to you will depend A LOT on this factor.
A few queries:
1] Are they unionized--formally or informally?
2] The general qualification profile of the employees.
3] Do you have any specific time-frame in mind to implement this?
4] Do any of the employees know about this PoA OR was this discussed informally within the company?
5] What is the Company employee strength--Blue-collar, Executives & management staff?
Prima-facie, Option-2 could be PRACTICALLY tough to implement--even if the employees aren't unionized.
Pl confirm the above points & also suggest wait for others' responses--there are quite a few members in citeHR who are adept on the legal aspects.
Rgds,
TS
From India, Hyderabad
1637You haven't mentioned much about the TYPE of workforce you currently have--since the options REALISTICALLY open to you will depend A LOT on this factor.
A few queries:
1] Are they unionized--formally or informally?
2] The general qualification profile of the employees.
3] Do you have any specific time-frame in mind to implement this?
4] Do any of the employees know about this PoA OR was this discussed informally within the company?
5] What is the Company employee strength--Blue-collar, Executives & management staff?
Prima-facie, Option-2 could be PRACTICALLY tough to implement--even if the employees aren't unionized.
Pl confirm the above points & also suggest wait for others' responses--there are quite a few members in citeHR who are adept on the legal aspects.
Rgds,
TS
From India, Hyderabad
Dear Mr.Krishna Reddy
Please indicate
(a) the number of workmen employed in your company and out of those how many are "workmen" as defined under the Industrial Disputes Act.
(b) Is your company a factory mine or plantation
With regards
From India, Madras
Please indicate
(a) the number of workmen employed in your company and out of those how many are "workmen" as defined under the Industrial Disputes Act.
(b) Is your company a factory mine or plantation
With regards
From India, Madras
Dear Sirs,
As per TS Qs here are my answers:
1. Yes they are formally unionized
2. The general workmen qualification is between 10th class to degree. But they are blue coller employees
3. Yes I do have a specific time frame - Within 6 months time.
4. Nobody in workforce knows this PoA - But informally with 1 or 2 people it was discussed but not about the options.
5. Company Strength - Blue collered - 85; Staff - 20; Management - 6
Replies to Sri V Harikrishnan's queries:
1. The number of workmen is 85.
2. Our company is a manufacturing company which manufactures auto components - It should come under Factory I guess.
Based on my queries, please let me know the best strategy to implement our PoA.
Thank you once again!
Best Regards,
GVKR
From India, Bangalore
As per TS Qs here are my answers:
1. Yes they are formally unionized
2. The general workmen qualification is between 10th class to degree. But they are blue coller employees
3. Yes I do have a specific time frame - Within 6 months time.
4. Nobody in workforce knows this PoA - But informally with 1 or 2 people it was discussed but not about the options.
5. Company Strength - Blue collered - 85; Staff - 20; Management - 6
Replies to Sri V Harikrishnan's queries:
1. The number of workmen is 85.
2. Our company is a manufacturing company which manufactures auto components - It should come under Factory I guess.
Based on my queries, please let me know the best strategy to implement our PoA.
Thank you once again!
Best Regards,
GVKR
From India, Bangalore
Dear Mr. G.V. Krishna Reddy,
There are many rules/ set of laws entwined in the process of Retrenchment.
Under the Industrial Disputes Act 1947, no employer cannot close an establishment or declare lock out or retrench any labour without taking prior approval of the specified Government Authority....
Please find the below link on Labor Retrenchment Laws and their effect on wages and employment which might be of any use to you.
Employment, Labor Laws and Labor Markets in India
From India, Visakhapatnam
There are many rules/ set of laws entwined in the process of Retrenchment.
Under the Industrial Disputes Act 1947, no employer cannot close an establishment or declare lock out or retrench any labour without taking prior approval of the specified Government Authority....
Please find the below link on Labor Retrenchment Laws and their effect on wages and employment which might be of any use to you.
Employment, Labor Laws and Labor Markets in India
From India, Visakhapatnam
Dear Mr G V Krishna Reddy,
I have gone through your post. Your problem is more with lack of strategic foresight than the rising labour cost. But then why the labour cost is rising? What did you do to contain this cost in the last four years? Why sales are not rising corresponding to the rising labour cost?
As of now your thought process is restricted only from the Industrial Disputes Act (IDA) point of view. Keep this act aside for a while. Suppose you do the retrenchment. But then will the retrenchment solve your problem permanently? What is the guarantee that you will not face the same problem again say after 1-2 years?
Why there is no demand for your product? What efforts did you do to build your brand? Why there is no brand pull?
What about the quality initiatives? Why are these not helping you to keep the rising cost at bay?
What is the level of inventory of raw materials? What percent is this inventory against sales? What tools do you use to keep the inventory levels minimum? In fact if you manage the inventory judiciously, you will be able to unblock the working capital and it will help you to tide over the rising labour cost.
What is the inventory of finished goods? What percent is this inventory against sales? Has the inventory of finished goods has been piled up because of improper demand forecasting? What is the ratio of sales volume per employee?
Rather than retrenchment or closure of business, I recommend you concentrating on how to increase the sales. If you have not paid salaries to the employees then it goes without saying that you have not paid to the vendors/suppliers as well. If you look only from retrenchment point of view, your account payables will remain as they are.
I am against the retrenchment or relocation because cost of labour will remain same whether you are at current place or somewhere else. Marginally it may reduce but certainly not drastically so as to tide over the current crisis. "Cheap labour" produces "cheap quality products" and you may make a note of this.
Ok...
Dinesh V Divekar
From India, Bangalore
I have gone through your post. Your problem is more with lack of strategic foresight than the rising labour cost. But then why the labour cost is rising? What did you do to contain this cost in the last four years? Why sales are not rising corresponding to the rising labour cost?
As of now your thought process is restricted only from the Industrial Disputes Act (IDA) point of view. Keep this act aside for a while. Suppose you do the retrenchment. But then will the retrenchment solve your problem permanently? What is the guarantee that you will not face the same problem again say after 1-2 years?
Why there is no demand for your product? What efforts did you do to build your brand? Why there is no brand pull?
What about the quality initiatives? Why are these not helping you to keep the rising cost at bay?
What is the level of inventory of raw materials? What percent is this inventory against sales? What tools do you use to keep the inventory levels minimum? In fact if you manage the inventory judiciously, you will be able to unblock the working capital and it will help you to tide over the rising labour cost.
What is the inventory of finished goods? What percent is this inventory against sales? Has the inventory of finished goods has been piled up because of improper demand forecasting? What is the ratio of sales volume per employee?
Rather than retrenchment or closure of business, I recommend you concentrating on how to increase the sales. If you have not paid salaries to the employees then it goes without saying that you have not paid to the vendors/suppliers as well. If you look only from retrenchment point of view, your account payables will remain as they are.
I am against the retrenchment or relocation because cost of labour will remain same whether you are at current place or somewhere else. Marginally it may reduce but certainly not drastically so as to tide over the current crisis. "Cheap labour" produces "cheap quality products" and you may make a note of this.
Ok...
Dinesh V Divekar
From India, Bangalore
Dear Mr GV Krishna Reddy,
I had not read your second post. I am giving reply to your second post now. If you produce auto components, then your supply chain supposed to be most advanced. Yes auto sales have decreased in the last 1-2 months but then your problems are far older. Reasons of declining auto sales cannot be attributed to your problems.
Anyway I reiterate the solution that I had given in the last post i.e. to increase the sales.
Ok...
Dinesh V Divekar
From India, Bangalore
I had not read your second post. I am giving reply to your second post now. If you produce auto components, then your supply chain supposed to be most advanced. Yes auto sales have decreased in the last 1-2 months but then your problems are far older. Reasons of declining auto sales cannot be attributed to your problems.
Anyway I reiterate the solution that I had given in the last post i.e. to increase the sales.
Ok...
Dinesh V Divekar
From India, Bangalore
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IMPACT OF RETRENCHMENT ON RECESSION.ppt
RETRENCHMENT ANNEXURE.doc