Gratuity and Full and Final Settlement (FnF) are two components of the employee’s salaries that are often interrelated with one another. Both components are applicable for the employee resigning from his job. However, both are fundamentally different from on another.
One of the common questions that employees often ask is whether the gratuity amount is payable with Full and Final settlement or not. In this article, we will look into the difference between “gratuity” and “full and final settlement” and how HR professionals can manage these compliances effectively.
Difference between Gratuity and Full & Final Settlement
The full and final settlement is paid to the employee upon the termination of their employment from the organization. It generally includes various salary components such as the final salary of an employee, outstanding dues, accrued leaves, and any other benefits.
On the other hand, gratuity is an end-of-service benefit that is provided to the employee based on their tenure of services within an organization. It is usually payable when an employee completes a certain period of service in an organization, as mandated by the employment laws in the country.
Is Gratuity Paid Under the Full and Final Settlement Process?
Generally, the gratuity amount is covered under the full & final settlement of an employee. However, it is important to note that the regulations regarding the gratuity benefit can vary from country to country. In addition, every organization has its own policies for calculating the gratuity amount for the employee. In India, an employee is eligible for a gratuity amount if he completes 5 years of service. This gratuity amount is generally calculated by using a standard formula – G= N*B*15/26. In this formula:
- N – Number of years an employee has worked
- B– Last drawn basic salary and dearness allowance (DA)
- G– Gratuity amount the employee is eligible to receive
Example of Gratuity Calculation Under Full and Final settlement
An employee has resigned from an organization where he was working for 5 years. His basic salary and dearness allowance amount to 25,000. In this case, the gratuity amount during the time of full and final settlement would be 5*25000*15/26= 72,115.
How to configure the gratuity amount under full & final settlement?
The full and final settlement includes various components such as unpaid salary, non-availed leaves, bonuses, and gratuity. Manually calculating all these components can be a time-consuming process with chances of miscalculations and errors. To overcome these challenges, you can leverage zimyo payroll software to configure your full and final settlement process. Our robust payroll solution can streamline the entire FnF process along with gratuity payment in a few simple clicks, ensuring that you stay compliant with all the laws and regulations.