Labour Laws and Practice · Law of Industrial Relations

Lay-off, Retrenchment, Closure and Re-skilling Fund

Updated 11 October 2026 · Fact-checked

Under the Industrial Relations Code, 2020, a laid-off worker with one year's continuous service gets 50% of basic wages plus dearness allowance. A retrenched worker gets notice and compensation under section 70, and the employer also pays 15 days' wages into the worker re-skilling fund. Closure is treated like retrenchment, with limits.

Understand Lay-off, Retrenchment, Closure and Re-skilling Fund

Lay-off means the employer cannot give work for a time, though the worker stays on the rolls and the job continues. The worker is idle, but not dismissed. Retrenchment is the permanent end of a worker's service for a reason other than punishment. Closure is the shutting down of the whole establishment. Each has its own money consequence.

For lay-off, section 67 pays compensation. The worker must not be a badli or casual worker, must be on the muster rolls, and must have completed at least one year of continuous service. The compensation is 50% of the total of basic wages and dearness allowance that would have been payable, for every day of lay-off. Weekly holidays that fall in between are excluded.

There is a limit. If a worker is laid off for more than 45 days in any twelve months, no compensation is payable for the days after the first 45, but only if the worker and employer have an agreement to that effect. After those 45 days the employer may also retrench the worker under section 70. Compensation already paid for the lay-off in the preceding twelve months can then be set off against the retrenchment compensation.

Section 78 bars lay-off without the prior permission of the appropriate Government in industrial establishments to which the Chapter applies. The exceptions are shortage of power, natural calamity and, for a mine, fire, flood, excess of inflammable gas or explosion. The text supplied here does not list which establishments the Chapter covers, so check that in your study material.

Closure is dealt with by section 75. A worker with at least one year of continuous service immediately before closure gets notice and compensation as if retrenched. Section 83 adds the worker re-skilling fund. On every retrenchment, the employer contributes 15 days' last drawn wages, and that amount is credited to the retrenched worker's account within 45 days.

Key rules to remember

Lay-off compensation (section 67): Compensation = 50% × (basic wages + dearness allowance) for each day of lay-off, excluding intervening weekly holidays; Applies to workers on muster rolls with at least one year of continuous service. Badli and casual workers are excluded.
45-day limit on lay-off compensation: Lay-off beyond 45 days in 12 months: no compensation for days after day 45, if there is an agreement to that effect; Without an agreement the proviso does not operate. The employer may retrench after 45 days and set off lay-off compensation paid.
Retrenchment compensation (section 70): Notice and compensation as provided in section 70. Working used on this page: 15 days' average pay × completed years of continuous service, with a part year over 6 months counted as a year; The text of section 70 is not reproduced here, so confirm the rate and the counting of part years against section 70 in the Code and your study material before relying on this working. Section 75(4) uses the 'in excess of six months' wording only for construction undertakings. Section 70 also requires notice of retrenchment. Check the notice details in your study material.
Closure compensation (section 75(1)): Notice and compensation under section 70, as if the worker had been retrenched; Needs at least one year of continuous service immediately before closure.
Cap for unavoidable circumstances: Compensation under section 70(b) ≤ average pay for 3 months; Financial difficulties or losses, undisposed stocks, expiry of lease or licence, and exhaustion of minerals in mining do not count as unavoidable circumstances.
Construction undertakings (section 75(4)): Work completed within 2 years: no compensation under section 70(b). Not completed within 2 years: compensation for every completed year or part in excess of 6 months; Applies to buildings, bridges, roads, canals, dams and other construction work.
Worker re-skilling fund (section 83): Employer contribution = 15 days' wages last drawn × each retrenched worker; credited to the worker's account within 45 days of retrenchment; The Central Government may notify a different number of days. Section 83 speaks of the contribution 'in case of retrenchment only', so lay-off does not attract it. For closure, section 75(1) treats the worker as retrenched only for notice and compensation under section 70. The text of section 75 does not settle whether the fund applies on closure, so do not state it either way as a certainty.
Lay-off in establishments to which the Chapter applies (section 78): Prior Government permission needed; deemed granted if no order within 60 days of application; order remains in force for one year; Without an application, or if permission is refused, the lay-off is illegal and workers get all benefits as if not laid off.

How to solve Lay-off, Retrenchment, Closure and Re-skilling Fund questions

Case questions ask you to find the right provision, test the facts and compute or advise. Follow this order every time.

1Identify the event: lay-off (work not given, service continues), retrenchment (permanent termination other than punishment) or closure of the whole establishment.
2Check worker eligibility: on muster rolls, not badli or casual, and the one-year continuous service condition.
3Check the establishment: is it an industrial establishment to which the Chapter containing section 78 applies, so that prior Government permission is needed? Look for the exceptions such as power shortage or natural calamity.
4Apply the rule: 50% of basic plus DA for lay-off days, section 70 notice and compensation for retrenchment, section 75 for closure.
5Test the limits: the 45-day proviso and agreement, the three-month cap for unavoidable closure, the two-year construction rule, and the mining alternative-employment rule.
6Add the re-skilling fund contribution if there is retrenchment, and note it is credited to the worker within 45 days.
7Compute with clear working, then state the conclusion in one line.

Quickest way: Four-question filter

When to use it: Use it when time is short and the facts are long.

Which event is it: lay-off, retrenchment or closure?
Is the worker eligible (muster rolls, not badli or casual, one year of continuous service)?
Which number applies: 50% of basic plus DA, 15 days' average pay per year, or 15 days' last drawn wages?
Is there a cap, exception or alternative employment that changes the result?

Common mistakes in Lay-off, Retrenchment, Closure and Re-skilling Fund

Computing lay-off compensation on total wages or on gross pay.
Students remember '50%' but forget what it is applied to.
Fix: Use only basic wages plus dearness allowance, and exclude weekly holidays that intervene during the lay-off.
Paying lay-off compensation to badli or casual workers.
The exclusion is in brackets and is easily missed.
Fix: Read the worker's status first. Badli and casual workers are outside section 67, although a badli worker ceases to be one after a year of continuous service.
Saying lay-off compensation always stops after 45 days.
The proviso is remembered without its condition.
Fix: State that it stops only if there is an agreement between worker and employer to that effect.
Treating closure for financial losses as unavoidable circumstances.
Losses feel beyond the employer's control.
Fix: Section 75's Explanation says financial difficulties, undisposed stocks, lease expiry and mineral exhaustion do not qualify, so the three-month cap does not apply.
Applying the re-skilling fund to lay-off, or stating a firm rule for closure.
All three involve loss of work, so students lump them together.
Fix: Section 83 speaks of contribution for every retrenched worker 'in case of retrenchment only', so lay-off does not attract it. For closure, section 75(1) treats the worker as retrenched only for notice and compensation under section 70, so do not say categorically that the fund is excluded or that it applies. Reason from the facts and your study material.
Confusing lay-off with retrenchment.
Both mean the worker is not working.
Fix: In lay-off the employment continues and work resumes later. In retrenchment the service ends permanently.

Worked examples

Example 1

Ramesh has worked for 4 years on the muster rolls of Sundaram Textiles Ltd. His basic wages plus dearness allowance are ₹1,000 per day. A machinery breakdown lays him off for 12 consecutive days, including 2 weekly holidays. Compute his lay-off compensation.

Show the solution

Eligibility: on muster rolls, not badli or casual, and has more than one year of continuous service, so section 67 applies.
Days counted: 12 days less 2 intervening weekly holidays = 10 days.
Rate: 50% of ₹1,000 = ₹500 per day.
Compensation = 10 × ₹500 = ₹5,000.

Answer: Ramesh is entitled to ₹5,000 as lay-off compensation.

Example 2

Kaveri Auto Components Ltd retrenches Meena, who has 8 years and 7 months of continuous service. Her average pay and her last drawn wages are both ₹1,200 per day. Assume the retrenchment compensation rule given in the question: 15 days' average pay for every completed year of continuous service, with a part year over six months counted as a full year. Compute her retrenchment compensation on that basis and the re-skilling fund contribution.

Show the solution

Identify the event: retrenchment, so section 70 and section 83 apply. The text of section 70 is not reproduced here, so the compensation working below rests on the rule stated in the question. In an exam, confirm it against section 70.
Years counted: Meena has 8 completed years, plus 7 months which is more than 6 months, so count 9 years.
15 days' average pay = 15 × ₹1,200 = ₹18,000.
Retrenchment compensation on the stated rule = 9 × ₹18,000 = ₹1,62,000.
Re-skilling fund under section 83: 15 days' wages last drawn = 15 × ₹1,200 = ₹18,000.
This is the employer's contribution and is credited to Meena's account within 45 days of the retrenchment.

Answer: On the stated rule, Meena gets retrenchment compensation of ₹1,62,000 (with the required notice), and the employer contributes ₹18,000 to the fund for her account within 45 days.

Exam tips

Quote the section and its condition together, for example section 67 with the one-year service and muster roll conditions.
In a numbers question, show the formula, the days counted and the multiplication. Marks follow the working.
In closure questions, always check the reason for closure. The Explanation to section 75(1) is a favourite trap.
Write the contrast between lay-off, retrenchment and closure in a short table-like list of lines. It is a frequent short-answer topic.
For section 78 questions, mention prior permission, the 60-day deemed grant and the illegal lay-off consequence.

Practice questions from Law of Industrial Relations

Lay-off, Retrenchment, Closure and Re-skilling Fund: frequently asked questions

What is the difference between lay-off and retrenchment?

In lay-off the employer cannot give work for a time but the employment continues, and the worker gets 50% of basic plus DA. Retrenchment is the permanent end of service for a reason other than punishment. It brings notice, compensation under section 70 and a re-skilling fund contribution.

How much is lay-off compensation under the Industrial Relations Code, 2020?

It is 50% of the total of basic wages and dearness allowance that would have been payable, for all days of lay-off except intervening weekly holidays. The worker needs one year of continuous service and must be on the muster rolls.

What is the worker re-skilling fund?

It is a fund set up by the appropriate Government under section 83. The employer contributes 15 days' last drawn wages for every retrenched worker, or another number of days notified by the Central Government. That amount is credited to the worker's account within 45 days of retrenchment.

Is compensation payable when an establishment closes?

Yes. A worker with at least one year of continuous service gets notice and compensation as if retrenched. If closure is due to unavoidable circumstances beyond the employer's control, compensation is capped at three months' average pay, but financial losses do not count as such circumstances.