What is Full and Final Settlement in payroll?
When an employee is leaving the company, he has to get paid for last working month. This procedure of paying or recovering during the resignation process is called Final Settlement.
Final settlement can be done on the last working payroll month or subsequent months. The employee can be settled first and then resigned or you can resign an employee and then do the final settlement at a later date.
What components are used to decide the final settlement sum?
- Unpaid Salary (including annual benefits such as leave travel allowance) and arrears, which is calculated as the number of days for which salary is to be paid multiplied by the gross salary divided by 26 (paid days in a month)
- Unpaid bonus
- Payment for non-availed leaves, which is calculated as the number of days of non-availed leave multiplied by basic salary divided by 26
Apart from the usual components the following might be applicable:
- Gratuity, if four years and 240 days have been completed
- Deductions include profession tax (if applicable), provident fund, income tax and compensation for notice period not served.
What is the period of settlement?
As far as the period for settlement is concerned, the final settlement needs to happen on an employee’s last working day at the organisation. However, as clearances take time, it is a prevalent policy to do so within 30-45 days after the employee has left.
For gratuity, the stipulation is 30 days after leaving the company, while bonuses must be paid within the specified accounting year.
What necessary measures that an employee must do to ensure no complications?
- Make sure to settle any advances taken or get it adjusted in the final settlement.
- Get a copy of all the various clearances required from the different departments of the organisation that you were attached with.
- Refer to the standing orders of the company, employee rule book, HR policy handbook etc. All such policies should be kept within the reach and knowledge of the employee. If these policies are not available with you may demand these and also try and obtain from some colleague.
- Instead of making verbal communications you should address written representation under acknowledgment to your HR contact and narrate all representations by phone (mention phone numbers, date, time etc.) and minutes of discussion, followed by escalation to MD, Chairman, Company Secretary, with a copy to Head-HR and raise your queries.
Under which law can an employee seek relief?
An employee can seek relief under Industrial Employment Standing Orders Act, SE Act applicable to the state, Payment of Wages Act, ID Act as per explanation of employee under these enactments or through Civil Court.
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What is the general format of a Full and Final settlement letter?
The GM- HR,
………………….(Name of Company)
Re: Issuance of Full & Final Settlement
Please refer to my resignation dt…….from the company. I am sorry to state that even after the expiry of …. days from my resignation, my full & final settlement is not made which is a cause of concern to me.
I, therefore, request that my full & final settlement be done & any amount due be sent to me along with the original Statement at the earliest.
thanking you in anticipation.