Navigating Full & Final Settlement: How to Handle Leave, Bonus, and Notice Deductions?

All members need your help.

A person designated as Deputy Manager joined in January 2007 on probation. He completed his 6-month probation and was issued a confirmation letter. He has resigned from his services effective 6th October 2007.

Now, I have some questions:
1) Should he be entitled to leave encashment in his full and final account, such as CL/SL?
2) Is he entitled to a bonus?
3) If so, how much – for example, 8.33% or the declared amount?
4) Since he did not serve the notice period, do I have the right to deduct one month's salary from his leave or bonus payment?

I need guidance on preparing his full and final settlement. Thank you.

Prashant More
DuFlon Polymers Pvt. Ltd

Dear Prashant,

1. Since he has been confirmed, I think leave encashment must be given.
2. As he has completed more than 30 days in the company, he will be eligible for a bonus.
3. I am not sure about the third question. Sorry for that.
4. As he has been confirmed, you can deduct the notice period from his final settlement, as per the terms of his appointment/confirmation.

Regards,
Sunil

Hi Prashant,

If you have issued a confirmation letter to any employee, automatically, he will be entitled to CL/SL and EL as well. If any employee who is confirmed works for more than 30 days, he is entitled to a bonus, whether it's 8.33% or 20%, or whatever your declared limit is. This depends upon the policy of your company.

If you have mentioned this requirement, I mean completion of the notice period; otherwise, the company will deduct one month's salary. Then you have the right to deduct his salary from his full and final account if he has not served his notice period.

If you need anything else, do tell me.

Thanks,
Sushma

Hi Prashanth,

Answer for the 3rd question? You have to give him the declared one as he has received the confirmation letter.

Regards,
Pandian

Hi Sushma,

Thank you for your reply.

Regarding my third question, at the time of his appointment, we had given him the total package inclusive of a 20% bonus for the period of 2006-07. Now, for the year 2007-08, do I have to give him a 20% bonus or can I provide the standard 8.33%? Which is applicable for him?

Thank you,
Prashant

Response to your queries:

1) Whether he should be entitled to leave encashment in Full & final account, e.g., CL/SL?
Ans: CL or SL is not supposed to be encashed. Only earned leave is to be encashed. If he has any, it has to be encashed.

2) Whether he should be entitled to a Bonus?
Ans: It depends on his salary. If his Basic & DA salary is less than 3500, he will be paid the bonus; if not, he is not eligible for a Bonus.

3) If yes, then how much, I mean 8.33% or the declared one?
Ans: NA

4) He has not served the notice period. Do I have the right to deduct the 1-month salary from leave or bonus payment?
Ans: Since his job is not confirmed, he can leave the job with a day's notice. No deduction is to be made. Check his Appointment Letter for this clause.

Bibek Banerjee

Hi Prashant,

Good morning.

If you have mentioned his CTC including a 20% bonus or if you have specified his 20% bonus in the appointment letter, then you'll have to give him 20%.

Here, I want to inform you about the policy of my company. We provide a 20% bonus to all our employees during Diwali. However, if any employee leaves the company, we only offer him/her 8.33% in their full and final settlement as per the instruction of the Managing Director. This instruction comes directly from the MD, so we must adhere to it.

Thank you,
Sushma

Dear All,

How can an employee become eligible for Earned Leave (EL) without completing one year of service in a company? If the employee is confirmed, should we require him to serve a one-month notice period, or do we deduct the equivalent amount from his final settlement?

Regards,
V. Arunkumar.

Hi Arun,

You are right. If an employee does not serve the organization for 240 days, he will not be eligible for earned leave (EL).

Sushma

Hi,

With respect to your queries:

1) Whether he should be entitled to leave encashment in Full & Final account, e.g., CL/SL? Since he is confirmed, he is entitled to the same.

2) Whether he should be entitled to a bonus? He is entitled to the bonus mentioned in the appointment letter.

3) If yes, then how much, I mean 8.33% or the declared one? Declared one.

4) He has not served the notice period. Do I have the right to deduct the 1-month salary from the leave or bonus payment? Yes, you should deduct the notice period amount.

Hope this helps you.

Regards, Karuuna 9833471989

You are right. If an employee does not serve the organization for 240 days, he will not be eligible for earned leave (EL). However, if he joins the organization in the middle of the calendar year and works for 2/3 of the period, he will be eligible for EL (as per Section 79 (ii) of the Factories Act 1948).

All answers are okay as I understand.

Regards,
Satish

Hi Sushma,

This rule has been revised. As per labor laws, we have to give one Earned Leave (EL) for every 20 working days.

Regards,
Jitender

You are right; if an employee does not serve the organization for 240 days, they will not be eligible for EL.

Sushma

Dear V. Arunkumar and friends,

Even though he joined in the middle of the calendar year, we have to give encashment for his eligible PL.

The Factories Act, 1948 Section 79 Explanation II (3) says:

"If a worker is discharged or dismissed from service or quits his employment or is superannuated or dies while in service, during the course of the calendar year, he or his heir or nominee, as the case may be, shall be entitled to wages in lieu of the quantum of leave to which he was entitled immediately before his discharge, dismissal, quitting of employment, superannuation, or death calculated at the rate specified in sub-section (1), even if he had not worked for the entire period specified in sub-section (1) or sub-section (2) making him eligible to avail of such leave, and such payment shall be made: ..."

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He has not served the notice period. Do I have the right to deduct one month's salary from leave or bonus payment?

Further, we are not allowed to deduct the notice period amount from the PL encashment.

The Factories Act Section 79 (12) states that the unavailed leave of a worker shall not be taken into consideration in computing the period of any notice required to be given before discharge or dismissal.

Regards,

Alphonse 😂 😂 😂

GTE

Hi Sushma,

Is it compulsory to complete 240 days for PL entitlement? Is there any specific reason? In our company, PL is applicable on completion of one year of continuous service, and it can be credited on the date of confirmation.

Regards,
Mrinal

Hi Prasanth,

1) Irrespective of employee status, whether confirmed or under probation, employees should be given full and final settlement as and when he/she resigns.

2) & 3) As per the Bonus Act, if his basic is greater than 3500/-, we need not pay bonus. However, if you have mentioned anything about bonus in his appointment letter, you have to abide by that stipulation, whether it is 8.33% or any specified amount, with a condition that he should work more than 30 working days.

4) If your appointment letter clearly states the notice period and the remedy in case of a breach of contract, you have every right to deduct the short notice amount. This amount will be calculated based on the terms agreed upon in the appointment letter.

Please let me know if you have a better solution in this regard.

Cheers,
KK

Hi Sushma,

The PL calculation is as follows: for every completed 17 days, one PL should be credited. However, for our convenience, we will credit the PLs at the end of the FY, after completing 12 months.

Please correct me if I am wrong.

Dear Arun & Sushma,

The employee needs to complete 240 days to avail leaves while in employment. However, when the employee leaves the organization, on a pro-rata basis, they are eligible to encash leaves (Only EL). In the case of CL & SL, it depends on the company's leave policy.

If I am incorrect, please update me.

Thanks,
Amit

Dear Arun & Sushma,

I am clarifying the same. EL does not depend upon the period of working. If he worked only for a month, then he also has EL. EL is basically given to a confirmed employee, but before the confirmation, if he leaves the job, the EL on a pro-rata basis will be encashed. Suppose you have 30 days EL in a year, but an employee can avail EL only after completing 6 months or 240 days or one year. But if he leaves the job after completing two months, he will get encashment of EL with his Full & Final Settlement.

For example, 30 (Total EL in a year) / 12 (months) i.e. 2.5 EL in a month * 2 months = 5 EL will be encashed with his Full & Final settlement.

Hope it is clear now.

Bibek Banerjee

Dear Prashant,

Below are the answers to your questions:

1. He is entitled to leave encashment if the leave balance is on his account. Because he is confirmed, and normally, as per the appointment order, an employee is eligible to get the leave after confirmation.

2. I think he may be drawing a salary (Basic + DA) of more than Rs. 3500/- per month, and he is not covered under the Bonus Act. If you are paying any ex-gratia/incentive to the employee, then it is at the discretion of the management to pay the same or not.

3. If the terms and conditions of his appointment order mention the notice period, then his short notice period may be deducted from his leaves.

Regards, Ashok Kuvalekar

Dear Prashant,

Your question no. 1 is:
Whether he should be entitled to leave encashment in Full & Final account, e.g., CL/SL?
The answer is only EL is encashable, and you will have to encash. What are CL and SL? Casual Leaves and Sick leaves are not the leaves that come in the category of encashment. Only Earned Leaves are encashable.

Your questions no. 2 and 3 are:
2) Whether he should be entitled to a Bonus?
3) If yes, then how much, I mean 8.33% or the declared one?
Yes, he is entitled to a Bonus same as it is applicable to other employees.

Your question no. 4 is:
4) He has not served the notice period. Do I have the right to deduct the 1-month salary from leave or bonus payment?
The answer is YES, you will deduct notice pay from any source up to the limit of his Basic Salary.

Bibhutosh Bhadauria

Hi, the answers given by Sunil are correct. The only thing is that you need to pay the bonus on a pro-rata basis, i.e., calculate from his date of joining until his last day in the company. And yes, don't forget to deduct his notice period pay from his F&F settlement.

Rohit Khopkar

Dear Jitender,

The provision for PL is that for every 20 working days, 1 PL is granted for adults, and for every 15 days, 1 PL is granted for children.

Thank you.

Hi Prashant,

Answers to your queries are mentioned below:

1. Yes, he would be entitled to leave encashment as it is every employee's right to receive that. However, it depends on the company's policy whether CL/SL can be encashed. Ideally, only EL is encashed.

2. Yes, he would be entitled to a bonus as well if it is mentioned in the salary breakdown in the Appointment Letter.

3. The company has the full right to deduct salary in lieu of not serving the notice period only if it is specified in the Terms and Conditions in the Appointment Letter. Please review his Appointment Letter before the Full and Final settlement papers.

Regards,
Akangi

Dear All,

According to the Factory Act of 1948, only Earned Leave (EL) can be encashed, neither Sick Leave (SL) nor Casual Leave (CL).

This is for your information.

With Regards,
Jitender

Hi,

1. Regarding the bonus, employees who have resigned need to pay a minimum amount of Rs. 100 to a maximum of Rs. 2500. For your safety, please refer to the Payment of Bonus Act, Section 32, where it states that some classes of employees are not eligible for a bonus.

2. If you provide leave encashment, you cannot deduct the notice period from the leave salary as per the Factories Act, Section 79(12).

Sincerely,
Senthil

Hello Sir,

Will this be applicable to the companies covered under the Shops and Establishment Act? We are not providing Earned Leave (EL) for employees who have not completed one year of service.

Regards,
V. Arunkumar

Hi Arun,

As long as an employee is with your organization, you can adhere to your terms and conditions and the law for 240 days. However, once an employee seeks settlement, you should provide their remaining salary along with earned leave (EL) within 48 hours. For instance, if an employee has worked for less than 20 days, there will not be any EL due. This requirement applies to both factories, shops, and establishments.

Thank you.

1) Should he be entitled to leave encashment in the full and final account, e.g., CL/SL? NO.

2) Should he be entitled to a bonus? Yes.

3) If yes, then how much, I mean 8.33% or the declared one? Minimum 8.33% or as per the company policy, and can give even more than that.

4) He has not served the notice period. Do I have the right to deduct one month's salary from the leave or bonus payment? Yes, of course, you have 100% right to deduct the notice although he has not served any notice.

Sampathkumar