Understanding Employee Compensation: How Does Resignation Differ from Lay-Off Payments?

Difference Between Compensation on Resignation and Lay-off

"We are paying the following full and final payment to our supervisor on his resignation. Please check and confirm."

- **Year of Service:** 21 years
- **Gratuity:** Gratuity = Monthly Salary (BASIC) x 15 days x No. of years of service / 26
- **Notice Salary:** 1 * BASIC SALARY
- **Leave Salary:** 1 * BASIC SALARY (30 unused leaves)
- **Bonus:** For pending months BASIC SALARY

To our knowledge, retrenchment (equal to gratuity amount) is not applicable as retrenchment is payable only in case of lay-off or termination.

Please advise.

Compensation on Resignation vs. Layoff

No compensation or notice pay is payable when an employee leaves by submitting their resignation. Therefore, in your calculation, you may have to exclude notice pay. At the time of full and final settlement, normally a bonus is not paid since the same is decided only after closing the financial statements, and the rate of the bonus will vary according to the allocable surplus. Similarly, it is not worked out on the basis of 'pending months basic salary,' but it is to be calculated proportionately to the days the employee has actually worked during the year. If they are leaving this month, then they will get a bonus for four months, and their bonus will be paid in 2012 only.

Understanding Layoff Compensation

Layoff is an entirely different subject that has nothing to do with full and final settlement. It is compensation payable to an employee on the payroll to whom the company is not in a position to provide work due to the non-availability of materials, power, etc. It is paid when the work is temporarily stopped.

Regards,
Madhu.T.K

Notice pay can be paid if we terminate the employee, but it is not applicable for resignations.

Regards,
Alphonse

The resigning employee is not accepting the final payment and is insisting on the following:

1. He should be paid gratuity at 16 days per year as he has 21 years of service.
2. Gratuity should be calculated on gross salary and not on basic salary.

Since it's been more than three months since he resigned, please advise on what we can do if he decides to take legal action.

Thanks

Let him go legal. In the meantime, please calculate his Gratuity based on Basic Salary + DA (if any) at the rate of 15 days' salary (not 16) for 21 years and deposit the amount with the District Labour Officer/Commissioner, who is the appropriate authority for Payment of Gratuity in your jurisdiction.

Regards,
Madhu.T.K

I have checked the notification up to 31/03/2011. As of 01/04/2011, there is a different notification, and the employee resigned on 31/03/2011. So, I think the below notification is applicable. It states that the minimum wage payable per day in respect of the M.W. Act 1948 in the U.T. of Dadra and Nagar Haveli up to 31/03/2011 is as follows:

The person who resigned was a supervisor.

Wage Categories

- **Category**: Skilled, Semi-Skilled, Unskilled
- **Basic**: 69.00, 62.50, 56.00
- **Special Allowance**: 80.60, 80.60, 80.60

Total: 149.60, 143.10, 136.60

Can you calculate now and please let me know if you want any more details.

Thanks

When you have no DA in your salary structure, why should you go for DA when compensation or full and final settlement is done? It has relevance only to fix wages and that also to ensure that wages fixed are not below minimum wages. In your example, minimum wages are Rs 149.60 per day or Rs 3890 per month. When your employee is paid higher than this, you have to follow that only.

Regards,
Madhu.T.K

We have understood the following from this discussion. Please correct me if required.

Full and Final Settlement in Case of Resignation

The below is payable as full and final settlement in case of resignation by an employee:

- Gratuity = Monthly Salary (BASIC) x 15 days x No. of years of service - (If the basic salary is above the Minimum Wages Act requirement, then no need to calculate the "DA").
- Leave Salary = Unused leaves on basic salary.
- Bonus = For pending months on basic salary.

We will be submitting the total of the above amount to the Labour Commissioner, since the employee is disputing this.

Thank you.