Employee Leaving with Unpaid Advance: How Can We Recover the Amount?

Advance Recovery from Employee Leaving the Company

The employee took an advance from the company in 2017 and consistently requested that it not be deducted from his salary. Now, as he plans to leave the job, he claims that an advance older than one year is not valid and, therefore, should not be deducted from his final settlement. How should the advance be recovered?

Recovery of Salary Advance from Employee

There is no problem if you recover the advance from the salary payable to him, say from the August salary payable in September. I presume since he has yet to submit his resignation, there will be a notice period and salary considerations. You may have to manage regarding the minimum take-home salary. Do you have documentary evidence of paying the advance? Ensure he does not refute the very payment of the advance to him; take care. The salary advance is normally to be recovered within, say, 11 installments. Not having recovered it so far is your fault. Using your discretion, you deferred the recovery from 2017 until now. You have learned a lesson now. Of course, you cannot recover from EPF and Gratuity.

If an employee has taken an advance and there is proof of this advance, it can be recovered at any time.

Recovery Options for Employee Advances

Depending on the quantum of the advance disbursed, you can choose the recovery options. Please recover the advance at the earliest. If he has resigned, this amount should be recovered from the full and final settlement amount or any other amount payable to him by the company, but certainly not from PF dues or Gratuity payment.

There is no limitation of one year prescribed for recovering advance from salary. This is particularly true since the employee has been requesting to defer the recoveries. Every time such a request is made, the limitation gets extended. As per Article 61 of the Limitation Act, 1963, it allows suits filed for recovery of advances up to three years, and the period gets extended when there is a request for delaying the recovery.

Documentary Evidence for Loan Recovery

In 3 years' time, do you have any documentary evidence for the payment of the advance/loan amount? Have you ever asked him to provide a request letter to avoid deducting the dues? Please review these documents and request payment of the outstanding dues. There is no time limit for the recovery of loan or salary advance dues from the employees.

Salary Advances and Gratuity Payments

Payment of salary advances (other than refundable advances from the EPF Account) recoverable in convenient installments, as per operational convention and past practice, is observed in an establishment. Generally, its administration is properly guided by certain standard operating procedures (SOP). These advances are meant to defray urgent commitments, expenses, and payments such as urgent/emergency situations like hospitalization, domestic events, education, and festival-related expenses, etc. The recovery thereof is made in such a way that it is closed within a year so that employees become eligible for a fresh advance again. The policy dictates that only one advance is under recovery at a time, and at least once a year, an advance is paid with no pending arrears at the time of the advance application processing. In small offices, it sometimes occurs that employees approach the authorized officer to defer the recovery by a month or a few months to tide over critical situations, ensuring that take-home pay without deductions will be of assistance. While there is no strict rule governing the administration of salary advances in terms of amount or reason for grant/periodicity of recovery, localized practices come into play.

Gratuity Payment

In the present scenario, there is no second opinion regarding full recovery. However, in the case of gratuity payment, an employer does not have the option to delay beyond a month, as any further delay would attract interest accrual until it is paid or deposited with the authorized officer. Options available to management if the exiting employee does not comply may include accepting the resignation or withholding the relieving letter/experience letter.

I hope this helps clarify the processes related to salary advances and gratuity payments in an organization.