Carry out a retrenchment in India, the right way.
Answer a few questions and the toolkit builds your evidence pack — a genuine surplus, last-in-first-out selection, one month’s notice and 15 days’ pay per year of service. India calls it retrenchment, and lay-off means something different.
India — the Industrial Relations Code 2020 (in force from 21 Nov 2025), which replaced the Industrial Disputes Act. One month’s notice + 15 days’ pay per year; 300+ workers need prior government permission.
The exact numbers and rules that apply — worked out for your situation and jurisdiction.
The letters, records and decision — drafted for your situation, ready to send. Not a checklist.
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Retrenchment, done right — for Indian employers
In Indian labour law a retrenchment is the termination of a workman for any reason other than punishment — that is, a role made surplus. (Do not confuse it with lay-off, which in India means a temporary suspension of work with the job kept open, not a permanent termination.) From 21 November 2025 the process is governed by the Industrial Relations Code 2020, which replaced the Industrial Disputes Act 1947. This free AI toolkit walks you through a valid retrenchment for your exact situation and builds the evidence pack.
The retrenchment process, step by step
- Business case — record the genuine reason the role is surplus (restructuring, downturn, closure); a retrenchment is about the post, not the person.
- Check the size threshold — an establishment with 300 or more workers (Chapter V-B) must obtain prior government permission before retrenching; below that, the ordinary Chapter V-A process applies.
- Selection — last in, first out — ordinarily retrench the most recently hired worker in the category first, unless you record valid reasons to depart from it.
- Notice — give one month’s written notice with reasons (or wages in lieu), and the required government notice.
- Retrenchment compensation & final pay — pay 15 days’ average pay per completed year of continuous service, plus notice pay and any dues, at or before the time of retrenchment.
Retrenchment compensation
Statutory retrenchment compensation is 15 days’ average pay for every completed year of continuous service (Industrial Relations Code 2020, s.70(b)). A part-year of more than six months counts as a full year. The worker must have at least one year of continuous service (240 days) to qualify. A contract, settlement or standing order can provide more.
Compensation must be paid at the time of retrenchment. The figure is a floor — confirm the applicable award, settlement or standing orders.
Notice
| All covered workmen | 1 month written notice (or wages in lieu) + reasons |
| Establishment with 300+ workers (Ch. V-B) | 3 months + prior government permission |
Industrial Relations Code 2020, ss.70(a) & 77. Government notice in the prescribed form is also required.
Larger establishments (government permission)
An establishment employing 300 or more workers falls under Chapter V-B: it must apply for and obtain prior permission of the appropriate government before retrenching, giving three months’ notice. Below 300 workers the Chapter V-A process (one month’s notice + compensation) applies without a permission requirement. A retrenchment dispute is decided by the Industrial Tribunal.
Common questions
How much retrenchment compensation is due?
15 days’ average pay for each completed year of continuous service, with a part-year over six months counting as a full year (IR Code 2020, s.70(b)). The worker needs at least one year (240 days) of continuous service to qualify.
Is retrenchment the same as lay-off in India?
No. Lay-off is a temporary inability to give work with the job kept open; retrenchment is a permanent termination of a surplus role. They carry different obligations — this toolkit covers retrenchment.
Do I need government permission?
Only if your establishment has 300 or more workers (Chapter V-B) — then you must obtain prior government permission and give three months’ notice. Smaller establishments give one month’s notice and pay compensation, no permission needed.
What selection rule applies?
Ordinarily last-in-first-out within the category of workmen affected. If you depart from LIFO you must record valid, non-arbitrary reasons, or the retrenchment can be challenged before the Industrial Tribunal.
Reference: Industrial Relations Code 2020, ss.70 & 77; commencement Gazette S.O. 5320(E), 21 Nov 2025. General information for employers, not legal advice.