Insights on Final Settlement Calculation for LTA and Medical Reimbursements

Sirs,

We are following the practice of medical allowance being disbursed monthly and LTA yearly. Now, my question is if a person has resigned within a 1.5-year tenure, whether they are eligible for a part payment of med/LTA and what is the legal procedure for this.

Regards, Revathy

Dear Revathy,

It depends on how your policies for medical and LTA have been framed. As per our company practice, we follow a pro-rata method, which means that if the person has claimed LTA for two years but has left within 1.5 years, the pro-rated half-year claim is recoverable from the employee. Similarly, a calculation is done for medical.

However, in case the amounts claimed are less than what the pro-rated amount is shown to be, then we pay the same to the employee as part of his full and final settlement amount.

Hope this helps.

I also agree with Swapna that it depends on your policy. In a normal case, it is paid on a pro-rata basis.

Regards,
Sree

Sirs,

Thank you for your reply. According to the appointment order, it states that "no LTA and medical encashment will be paid on a pro-rata basis if the person has resigned in the middle of the year." I am inquiring about the legal procedure. Is the employee eligible for this amount?

Regards, Revathy

Dear Revathy,

As per the appointment letter, the employee is not eligible, and he can't go for any legal proceedings against this. But I think if it is part of his CTC, then how can you put such a clause in the appointment letter? Personally, I am not agreeing with that condition. In my opinion, if it is part of the employee's CTC, then he is eligible for the benefits.

Regards, Sreekanth

Hi,

Employers are not under any binding agreement under any statute to pay LTA and/or Medical Allowances at the time of exit to any employee. It is entirely guided by the Standard Operating HR Practices/Guidelines that govern an employee. This clause needs to be specifically mentioned in the Service Agreements, in this case, which has been done. So, nothing is stopping you from not paying that. But you know we tend to save on such small amounts, and in the process, we trade off with the image of our company.

So my suggestion would be to go ahead and pay it after you have obtained buy-in from your Senior Management. No legal provisions are going to stop you from doing that either :-)

Thanks,
Abhisek Majumdar

Dear Revathi,

I agree with Mr. Abhishek that you are not at any legal risk. As Mr. Abhishek mentioned, this is a meager amount. Considering the company's image, you should pay it off to the employee as it matters to him greatly. I recommend trying to convince your senior management and making the payment.

Best of luck.

Sreekanth

Dear Revathy,

I agree with the team members. It depends on the policy. In our organization, we recover on a pro-rata basis, even if we include it in CTC.

Regards,
Mausam

Hi!

Medical & LTA eligibility will be guided by company policy. Normally, an employee completing a year of service will be eligible for LTA for the entire period of service. Medical shall be paid in line with the policy.

Thanks & Regards,
Sonal

Revathy,

The LTA and medical reimbursements are part of the salary and are given quarterly or annually for the ease of administrative purposes. Also, as this is part of the CTC, the employer cannot deny this amount to the departing employee. Therefore, when the full and final settlement is made, these should be calculated and given to the employee.

Moreover, when employees are treated fairly, they will leave the organization in good faith; otherwise, there may be negative publicity, and gradually, it may impact the organization in the long run.

Cordially,
Preet

Hi,

If you have included the same in his CTC or monthly base salary; however, that is paid in regular intervals, in those cases you need to incorporate the same on a pro-rata basis in the final settlement. The employee is eligible for this (as per above), and this needs to be paid. However, in case you practice TDS, you can ask for the proofs and provide me exemptions on the same or else deduct taxes, and the employee can claim the exemptions on Medical & LTA later on in his next employer or while filing the Income Tax returns.