Umakanthan53
Labour Law & Hr Consultant

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Hi,
Need help in the following things related to HR.
1. What should be the mandatory components in the Final settlement
2. Is leave encashment mandatory at the time of final settlement
3. Is the variable component to be paid mandatory at the final settlement
Thank you,
Regards,
Vijaya

From India, Pune
Dear Vijaya,

The mandatory components of final settlement of employment dues to an exiting employee depends on (i) the nature of termination of employment and (ii) cadre of employment of the employee concerned.

If the nature of termination is voluntary like resignation or by operation of the relevant service rule or the terms of the contract like retirement on attaining the age of superannuation or non-renewal of the contract on its expiry respectively, the employer will have to pay only statutory terminal benefits of gratuity and value of EL at credit subject to the conditions laid down in the respective laws.

In case of termination of employment at the instance of the employer other than dismissal , the employer would have to pay all the statutory benefits including retrenchment compensation or the terminal benefits as specified in the IDA, 1947 or the contract of employment as the case be.

In the case of employees above the cadre of ' workman ' as defined u/s 2(s) of the IDA, 1947, service regulations applicable or the relevant terms in the contract of employment decide the additional terminal benefits like notice pay, encashment of leave at credit, institutional pension if any etc. But statutory gratuity should be paid subject to the employee's eligibility.

If the outgoing employee is a workman and the termination is at the employer's behest other than dismissal, notice pay in lieu of one month's notice and retrenchment compensation @ 15 days average wages for every completed year of service have to be paid ( Sec. 25-F of IDA ) apart from gratuity and leave as per the establishment specific law.

In case of dismissal on certain specific grounds of proven misconduct, even gratuity can be fully or partially forfeited subject to issuance of a notice u/s 4(6) of the PGA, 1972.

For the time limit for payment of such dues, you may refer to the PGA, 1972 and the IDA, 1947.

The inclusion of the variable components of wage or salary depends on the item of the terminal benefit. For example, gratuity has to be calculated only by taking the sum of basic and dearness allowance last drawn, for retrenchment and leave encashment, all the components of wage other than those paid on account of the special nature of the job have to be taken into account.

From India, Salem
Thank you Sir for your inputs.
Please let me know if leave encashment is mandatory to be given as a final settlement.
Also if the variable component ( for the year 17-18-19-20) which is a part of the CTC, can this be denied , since the company is not performing well.
Employees are not terminated and its a resignation. These queries are for an IT company.
Regards,
Vijaya

From India, Pune
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