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Notes for use
These notes accompany the template and explain the drafting choices, the compliance points and the mistakes most often made with this document. They appear as a final page in the Word file, intended to be deleted before the document is executed.
Two working days is the deadline, and it changes the process
Wages due on termination must be paid within two working days of the employment ending, whatever the reason — resignation, dismissal, retrenchment or end of a fixed term. The practice of settling thirty or forty-five days after the last working day does not comply. The only way to meet it is to run clearances, recover advances and compute the settlement during the notice period, so that the payment is ready to release on the last working day.
Compute on wages as statutorily defined
Leave encashment and gratuity are computed on wages as the consolidated legislation defines them, which includes basic and dearness allowance and any retaining allowance, and requires that excluded components not exceed half of total remuneration. Where a salary was structured the old way, with a small basic, the statutory computation produces a larger figure than the payroll system may generate. Check the base before releasing the settlement.
Gratuity and fixed-term employees
Gratuity is ordinarily payable on completing the qualifying period of continuous service. A fixed-term employee is entitled to gratuity in proportion to service without completing that period. Do not apply the general qualifying period to a fixed-term employee.
Deductions are limited
Only deductions permitted by law may be made, and the aggregate of deductions in a wage period is subject to a statutory ceiling. Part B requires the authority for each deduction to be stated, which is a discipline worth keeping: recoveries that are contractual rather than statutory, such as a joining bonus clawback, need a contractual basis in a document the employee signed.
Recovering the value of unreturned property
Deducting the value of a laptop or a device is permitted within limits, but the amount must be reasonable and evidenced. Itemise it in the clearance record, use a depreciated value rather than replacement cost, and tell the employee before the settlement is released. An unexplained deduction is the most common trigger for a post-exit dispute.
Employment bonds recover cost, not a penalty
A recovery under a training bond is enforceable only to the extent of the actual cost the employer incurred, apportioned for the service the employee did complete. A bond that fixes a round sum unrelated to any cost operates as a penalty and is not enforceable; a court will award only reasonable compensation for actual loss. Compute the recovery from the actual invoice, not from the bond amount.
A full and final release cannot waive statutory entitlements
Paragraph 5 of the acknowledgement is a contractual release. It does not, and cannot, waive statutory entitlements such as gratuity or provident fund. Where an employee signs a release under pressure at the moment of payment, its value is also reduced. Give the statement in advance, allow queries, and record any preserved claim expressly rather than leaving the paragraph absolute.
Do not withhold the relieving letter
Withholding a relieving letter or an experience certificate to force a settlement or to enforce a notice period is a common practice and a poor one. It causes real harm to the employee’s next employment, invites a claim, and does not improve the employer’s position on the money. Issue the relieving letter on the last working day and pursue any recovery separately.
Revoke access on the last working day, not later
Item 2 and item 12 of the clearance record are the security-critical ones. Email, cloud, code repositories, VPN, bank mandates, statutory portal credentials, digital signature certificates and any power of attorney all need revoking. A departed employee with subsisting signatory authority is a live exposure, and it is discovered in the worst way.
Death in service
Where the employment ends on death, the settlement is paid to the nominee on production of the prescribed documents, and gratuity is payable irrespective of the qualifying period of service. Handle it promptly and without requiring the family to chase; this is the situation in which delay causes the most harm and the most reputational damage.
Keep the records
The settlement statement, the clearance record, the acknowledgement and the proof of payment should be retained together for the statutory retention period. Where a claim is made years later, this file is the answer, and its absence is what turns a straightforward matter into a contested one.
Verify your State’s position
Leave encashment entitlements, notice requirements, retrenchment compensation and record-keeping obligations differ between States under the rules notified separately by each. Confirm the position for the State of the place of work before adopting this template across locations.
Current as of
Reflects Indian law current as of {{DATE OF USE}}. Wage definitions, settlement timelines, gratuity computation and permitted deductions all change — have this template and the computation logic reviewed by an employment adviser and a payroll specialist.
This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, company secretary, or chartered accountant as relevant) before you rely on it.