Verizon : Government Adds Tax Insult to Forced Retrenchment Injury

Last year Verizon laid off many employees using bouncers to threaten them. These employees were terminated on a single day and sent out of the company on the same day. We have covered this illegal retrenchment in various articles. This news is one of the important news covered in almost all leading magazines of India at that time.

The total number of employees retrenched as per news reported in media is 700. But in reality, there may be 1000 employees retrenched as part of this exercise. This coverage is not about the layoff, but about one of the after effects in the affected employees life.

The average tenure of employment of laid off employees would be around 12 years based on our discussion with many affected employees. These employees are terminated in the month of December last year (2017).

Indian Income tax financial year follows Apr – Mar cycle and employee income tax will be calculated based on the income received by employees in this period. As retrenched employees are senior employees and Verizon is one of the good pay masters in the Industry, average salary of these employees is around Rs 15 lakh. Verizon paid 1 month salary for every year of service in the company as retrenchment package .

For example, for an employee who had worked for 12 years, his/her average salary would be 15 lakh per year. In this case, Verizon paid Rs 15 lakh as severance package.

We talked with many people and we assume these numbers based on discussion we had with them.

During Financial year 2016-2017, all these employees worked in Verizon and got their full salary from Apr – Nov period (8 months). They were retrenched in the month of Dec. They were jobless for period of 4 months (Dec 2017 – Mar 2018).

Based on our assumption, an employee with annual salary of Rs 15 lakh received Rs 11,25,000 for 9 month they worked. Verizon paid retrenchment pay of Rs 15 lakh to these employees. So the total income for these employees during the financial year is Rs 11,25,000 for the period they worked plus Rs 15,00,000 for retrenched period equals Rs 26,25,000.

This way, Verizon as part of retrenchment package calculated the total compensation of employees during financial year 2016-17 as Rs 26,25,000. They cut down tax component for the severance package based on tax slab. As the employee received 20+ months salary during the financial year, the employees falls under   30% tax rate slab.

So if Rs 15 lakh is paid as retrenchment package, Rs 4,50,000 is deducted based on tax rate slab. So Income tax department received Rs 45 crore (Rs 4.5 lakh average x 1000 employees) as per our above assumption based on talks with affected employees.

The sad part of this story is majority of the employees did not get any job even after one year of retrenchment. They did not get any salary for this financial year 2017-18. The people are not only affected by retrenchment but also by with the additional tax they paid. The government unfairly collected tax from the employee who is already grievously affected by job less.

These employees are continuing their lives without jobs using their retirement benefits. But they had paid additional tax due to the illegal layoff they faced.

In western countries, people are protected from job loss and governments provides social security benefits to employees until they get a new job. There are insurance available to cover people during job loss period.

In India, IT people are the ones who paid their tax regularly for several years and form a considerable part of tax paying community. If government is not helping employees like western countries it is fine as we are developing country and understand the difficulty in implementation. But having additional taxation is definitely not correct procedure.

If government employees opt for voluntary separation process, definitely there may be procedures to spread the income over next few years and calculate tax on lower slab. In the case of Verizon employees, it was a involuntary separation process where company retrenched without getting the consent of employees. These employees are already struggling without jobs. So government should come forward and consider refund of tax based on average earnings of retrenched employees in the subsequent years.

As part of NDLF, we are exploring options to to file Public Interest Litigation seeking justice to help affected employees. The employees who are affected please contact us in this regard.

– Shyam Sundar, President,
NDLF IT Employees Wing

Cartoons from the WWW

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    • Kasirajan on November 5, 2018 at 1:23 pm
    • Reply

    Telling lies in front of media is said to be Business ethics…

    Wow capitalist

    • find me on November 5, 2018 at 3:42 pm
    • Reply


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