How to mail to HR for full and final settlement?

हिंदी में पढ़ें
September 22, 2021
By Advocate Chikirsha Mohanty

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.

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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. It should be offered within 30 days of the resignation. Gratuity is dealt with by the Gratuity Act 1972. If the employee fails to pay gratuity, it will have to pay with interest.

  • Pension, as long as the employee has completed at least 6 months of service with the existing employer and 10 years of pensionable service on providing Scheme Certificate after retirement age.

  • Deductions include profession tax (if applicable), provident fund, ESIC, 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.

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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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Full and Final Settlement under Code on Wages, 2019

The Code on Wages, 2019 seeks universalization of the laws related to the timely payment of wages and minimum wages to the employees. Besides quicker settlements, the Code on Wages has increased applicability to a broader class of employees. The provision related to the early settlement of dues has maximized coverage by extending the applicability of provisions to the unorganized sector.

The Payment of Wages Act, which, at present, lays down a timeline to make payment of wages. The Act is silent on a lot of matters including the full and final settlement if an employee resigns. The Code on Wages is more likely to bring better compliance and clarity once it is implemented.

Why do you need a lawyer at the time of full and final settlement?

If your salary and dues have not been paid even after the due dates, you can take a legal action against the employer and for this you should hire a lawyer. If you are aggrieved, you can send a legal notice, approach the labour commissioner, the labour court, the civil court or the NCLT. However, a lawyer will be able to guide you best as to what direction you should take, depending upon the facts and circumstances of your particular case. He/she is an expert in such matters and will help you find the best way out and take care of all the legal documentation and appearances in the court.

What is the general format of a Full and Final settlement letter?

The GM- HR,
......................(Name of Company)

Re: Issuance of Full & Final Settlement

Dear Sir / Madam,

This is for your kind information that the undersigned has resigned from your organization and is requesting you to kindly process the full and final settlement from your end.

The details are as below:

Name :
Employee Code :
Designation :
Project :
Date of resignation :

Thanking you
Kind Regards
..........(Current Address)



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