Understanding Full and Final Settlement: Should It Be Based on Basic or Gross Salary?

Dear All,

Can you please elaborate on the norms of full and final settlement? Whether the calculation should be based on basic salary or gross salary?

Thank you.

Hi Yamini,

If your concern is regarding the final salary settlement and other payments, then they are based on the gross salary. However, leave encashment and gratuity would be calculated based on the basic salary.

Thank you.

I do not think the practice of giving leave encashment on basic is right.

Most of the shop and establishment acts and the factory act require compulsory encashment of leave pending at the time of termination of employment. It also specifies that this will be paid on "normal wages," which means gross wages.

Salary/wages, medical/other reimbursements, and leave encashment should be based on gross pay. Gratuity and bonus should be calculated according to statutory norms.

Please let me know if you need any further assistance.