Prepaid or Postpaid ?

Generally, it has been seen that Indian firms follow two kinds of bonds/service agreements. Some companies get an agreement signed by employees upon joining that in case they leave the company within the stipulated period, they’ll have to pay a certain amount. The second category of bonds require the employee to deposit a certain amount on joining, which stands to be forfeited by the organization in case the employee terminates his employment before the stipulated period, as in the case of Asatyam. Most Indian firms follow the former approach as an employee will not be open to the idea of depositing a large sum of money even before he has started rendering his services, but it has been seen that companies usually do not spend their resources pursuing the employee once he has left. Hence, in the first approach discussed here, though almost all firms get an agreement signed by the employee, very few actually enforce them. This to some extent works to the advantage to the employee.

However, there are firms which go for the second approach, which require employees to pay a certain sum beforehand. But this does not necessarily mean that the employee needs to shell out the sum from his pocket. Usually companies join hands with banks/financial institutions to provide the sum, which needs to be repaid by the employee to the bank, in case he/she quits. This is an advantageous situation for the company since if the employee leaves, the firm need not pursue the employee for the bond amount. It’s the bank’s responsibility to recover the amount from the employee.

Here, I would like to cite a distinct practice followed by IBM India Ltd which I came across, while I was a part of the organization. According to their policy, the employee needs to enter into an agreement with IBM and HDFC Bank Ltd whereby, as a security for continued employment with IBM, one needs to open a fixed deposit worth Rupees One Lakh with HDFC Bank for a period of 12 months. In the event the employee absconds from work or leaves IBM’s services within a period of 12 months from the date of joining, the fixed deposit is invoked and paid directly by the bank to IBM. On successful completion of one year, the matured fixed deposit is paid to the employee. The employees have an option of borrowing a loan from HDFC Bank, the EMIs for which are deducted from the employee’s salary for a period of 12 months.

Let us also consider the service agreement followed by Accenture, where the bond amount keeps on reducing after the training period is over, depending on the services rendered by the employee. PSEs like NTPC Ltd have a bond worth Rs.3 lakh for a period of three years, but hardly has one heard of a PSU recovering the bond amount after the employee has left. Thus we see that the second approach discussed above is beneficial to the company since the bond gets automatically enforced the moment the employee quits, and there’s no way the employee can avoid paying the amount. This works well for firms which incur huge costs in training employees, which needs to be recovered if the employment is terminated early.