Law regarding the timeline of the Settlement & Salary Period

[Mugdhavn13]

Hi,

We are a small setup of 25 employees based in Noida. We have ambiguity regarding the duration for full and final settlement of the employees after their separation (Voluntary or involuntary). The FnF amount includes the unpaid salary, leave adjustments, allowances and bonuses etc. All is paid at once during FnF.

I have 2 questions:

1. Is there any specific law/ guideline regarding the timeline of the settlement that we should follow?
   I would request you to share the law as applicable.

2. How is the salary for that particular period paid? For Eg: If an employee’s notice period starts from 25th Jan, then his Jan month salary will be included in the routine payroll or will it be included in FnF? Or can we pay salary till 24th Jan in the payroll and the salary for the days of notice period in the FnF settlement?

Request you to kindly shed light on this.

[Umakanthan]

Hi Mugdhavn,

1)Though no information about the type of the establishment, since its employee strength is 25 only, you are covered by the provisions of Chapter V-A of the Industrial Disputes Act,1947 in respect of F&F Settlement of dues on termination at the instance of the employer. Please refer to sec.2(oo) of the ID Act,1947 which defines the term ’ retrenchment’. Other than those excluded modes, any other mode of termination of employment of an employee by the employer would be retrenchment. In such a situation, the employer has to comply with the provision of section 25-F of the Act which includes one month’s notice of retrenchment or payment of ne month salary in lieu of such notice and retrenchment compensation calculated at the rate of 15 days average wages for every completed year of service. If these conditions are not fulfilled before termination that would be illegal. In other words, these payments should be simultaneous with the orders of retrenchment. For other statutory dues like gratuity, unpaid salary, surrender leave salary etc have to disbursed as per the time limit set out under the Payment of Gratuity Act,1947 and the Payment of Wages Act,1936.

2. Notice period does not alter the service conditions usually applicable to the employee. Therefore, it is better to disburse the salary for the notice period served on the very date of retrenchment itself.

3. Payment of retrenchment compensation does not apply to resignees.

[Dinesh]

Thanks @Umakanthan Sir, your answers add lot of value to the discussions.

[Mugdhavn13]

Yes, I agree with @Dinesh sir Thank you @Umakanthan sir for your valuable inputs.

[Sree]

While reading an update on ET, noticed that according to the Code on Wages, 2019, notified on August 8, your employer will have to pay all your wages within two days after your last working day. But the article was published in 2019 and we need to see whether the actual bill carry this or not, now.

[Ankit]

As per Payment of Wages Act:-

FULL & FINAL SETTLEMENT SHOULD BE PAID BEFORE THE EXPIRY OF THE SECOND WORKING DAY FROM THE DAY FROM WHICH HE WAS EFFECTIVELY TERMINATED