Can We Handle Final Settlements Separately from Payroll? Seeking Clarity on Legal Rules in Retail

Dear respected seniors, I seek clarification on a few points. We belong to a Retail Group and are considering treating the Full & Final settlements of resigned employees separately from the regular payroll.

Scenario 1: Full & Final Settlement for Resigned Employees

To illustrate, if an employee submits his resignation on July 15th and serves a one-month notice period as per the agreement, thereby being relieved on August 15th, can we provide his entire salary for July and until August 15th as a Full & Final settlement?

Scenario 2: Withholding Salary for Incomplete Notice Period

Alternatively, if an employee is unwilling to serve the complete notice period, do we have the right to withhold his salary in full? I seek to understand if there are any specific employee benefit rules or labor laws that are applicable to these scenarios.

I appreciate your advice on this matter and thank you in advance.

Regards,

Legal Considerations for Full and Final Settlement

You cannot view your system/proposed system of Full and Final settlement from a legal point of view because your system lacks logic. Legally, you cannot hold the salary of an employee (who might have submitted their resignation) beyond seven days of the wage period. That means if the date of resignation is July 15th, you cannot hold the salary for that month until the final settlement, which may take place on August 15th or later. This is true, at least in the case of non-managerial employees.

At the same time, most companies have an F&F policy whereby the employee who has resigned will not receive their month's salary on time but only at the time of F&F. Nobody questions it because they are much concerned about the service certificate and sometimes due to ignorance. Therefore, you may proceed with your own policy, but do not claim that it will be legally compliant.

Regards,
Madhu.T.K

Dear Bhandavi, As per the Payment of Wages Act, you cannot hold the salary of the employee for more than 7 days (if the strength is 100 but less than 1000) and 10 days (if the employee strength is more than 1000). However, for the full and final settlement, you can make deductions for the notice period days if the employee has not served as per your appointment order.

Why wait until that time? It is advisable to calculate and settle the amount at the earliest.

Regards, V. SRI