The appropriate employee exit procedure is followed when an employee leaves the company or is fired. India’s labor laws regulate and specify how an employee may be let go from their position.
Companies have different exit procedures. An exit interview, departmental clearances, the full and final settlement (FnF), and the issuance of a relieving letter are usually required.
Definition of Full and Final settlement
An essential component of the employee departure procedure is the full and final settlement, or FnF policy. Calculating the ultimate salary, including deductions and encashments, is its primary goal. It includes bonuses, incentives, benefits, gratuities, provident funds, and more.
By the employee’s last day of employment, the complete and final settlement must be finished. Generally speaking, this procedure is simple and should follow any rules specified in the job contract.
Qualifications
The conditions outlined in the employment contract or corporate policy usually determine the eligibility requirements for Full and Final Settlement (FnF). Regardless of the circumstances, each employee who leaves a company has the right to receive the Full and Final Settlement (FnF).
Within two days of the employee’s last day of employment, the Full and Final Settlement (FnF) must be finished.
The unpaid salary for the days worked between the resignation date and the last working day is included in the Full and Final Settlement Salary components. This covers unpaid wages as well as yearly benefits like arrears and Leave Travel Allowance (LTA). The number of days for compensation is multiplied by the gross salary, and the result is divided by 26 (the number of paid days in a month) to determine arrears. (Days for compensation × Gross Salary)/26 = Arrears
Bonuses and Incentives: A number of businesses offer bonuses and incentives that are correlated with both employee performance and business income. The bonus sum is typically included in the Full and Final Settlement (FnF) when an employee departs the company.
Leave encashment: Any unpaid leave balances must be paid by the seventh or tenth of the month after the resignation, per Section 79 (11) of the Factories Act 1948. The company’s leave encashment policy determines how unused leaves, such as earned or privileged leave, are calculated for payment.
Employee Provident Fund (EPF): When final dues are settled, the employer is required to update the departing employee on the status of their PF account. The employee will receive the fund when they retire. The Employee Provident Fund account is transferred to the new employer in the event of resignation for a new position. The employee’s departure date must be updated on the EPFO portal by the current employer.
Gratuity: In accordance with PG Act 1972 Section 7(3), gratuities must be given within 30 days of the separation. Otherwise, after four years and 240 days of service, it must be paid with interest.
Deductions: These include income tax, provident fund contributions, profession tax (if applicable), and compensation for notice period not served. According to the Income Tax Act, gratuities and encashed earned leave are not subject to Tax Deducted at Source (TDS). Under Section 192 of the Income Tax Act, TDS is applicable for all other payments. The E.P.F. claim forms must be submitted by the employer within five days of the employee submitting their claim, as per Section 72(5) of the E.P.F. Act 1952.
Pension: Workers who have worked for your company for ten years or more are eligible for pension benefits. They must present their “Scheme certificate” when they retire or turn 58 in order to receive these rewards. The Employer’s Provident Fund (E.P.S.) is usually used to pay the pension, which has a minimum of Rs 1000 and frequently ranges around Rs 7500.
Process for Initiating FnF Settlement
Employee resignation: An employee formally submits their resignation when they choose to quit the organization. Typically, this takes the shape of a resignation letter or email addressed to HR and the reporting manager.
Acceptance of resignation by HR and the employer: The employee’s resignation is formally acknowledged and accepted by the employer and HR division. From the employer’s point of view, this validates the start of the exit procedure.
HR has not processed the dues certificate: HR makes sure the leaving employee has no outstanding financial or administrative commitments.
Verification of EPF, bonus, leave balance, and other benefits: HR checks and computes the employee’s benefits, including EPF (Employee Provident Fund), leave balance, bonus, and other applicable bonuses. This guarantees that the financial and benefit components are settled accurately.
Complete and final statement that Finance has received and processed: The Full and Final (FnF) settlement is processed by the Finance department, which includes all verified sums and financial information. After the financial settlement is finalized, HR makes sure the worker gets paid on time and correctly.
Essential documents or FnF settlements
Letter of resignation or termination: This paper establishes the framework for subsequent exit procedures and formally conveys the intention to depart.
The final pay statement The employee’s earnings, deductions, and allowances for the most recent pay cycle are all detailed in the final salary statement. It functions as an open and honest synopsis of the financial transactions associated with the worker’s last days of employment.
Absence of a required clearance certificate The employee needs to get a no-due clearance certificate before ending their employment. This HR department-issued paper ensures a seamless leave by attesting that the departing employee has fulfilled all unpaid obligations.
Form 16: Employers in India provide their workers with Form 16, an income tax document. It includes the tax deducted at source (TDS) and salary information for the fiscal year. Form 16 should be sent to the employee’s email by the company together with the final payslip.
Approval of notice period completion and letter of release: Getting notice period completion approval is crucial for workers who have a notice period. This permission completes an important part of the leaving process by confirming that the employee has served the mandatory notice time.
