Settle exits without a calculator. Gratuity, leave encashment, notice recovery — calculated, approved, paid.
A clean exit workflow for resignations, retirements, terminations and death cases. Inkwelly computes pending salary, gratuity (Payment of Gratuity Act 1972), leave encashment, notice-period recovery and estimated TDS, lets HR add other recoveries or payments, and pushes the net into a final-settlement payroll run.
How most Indian schools settle exits today
The head clerk of a CBSE school in Indore opens a manila folder on the principal's desk. Inside is the senior PGT Maths teacher's resignation letter, dated last month, last working day fixed for the end of this month. The clerk picks up a calculator. He needs to figure out: how many days of leave is she entitled to encash this year? What is her gratuity — she joined in 2009, so it's 16 years, but is the school covered under the Payment of Gratuity Act 1972 or not, and does the formula round 16 to 16 or treat the part-year differently? Notice period was 60 days; she gave 30 — should we recover one month's basic? Her PF outstanding loan is ₹12,000. TDS for this year already deducted up to last month — will the lump sum settlement push her into a higher slab? She has unrecovered Festival Advance from October.
For the next four hours, he toggles between the salary register, the leave register, the loan register, the previous Form 16, the school accountant's TDS spreadsheet and a calculator. He arrives at a number, writes it on a slip, walks it to the principal. The principal asks where the gratuity figure came from. The clerk explains the math. The principal says it looks low; let's recheck. The teacher arrives next morning to collect her settlement and hand over keys. The cheque is wrong. She leaves angry. Two weeks later, a letter arrives from her advocate.
This is what F&F looks like in most Indian schools. Inkwelly Full & Final Settlement was built so this never happens to your school.
How Inkwelly Full & Final Settlement works
When a staff member exits, HR opens School → Employee Payroll → Full & Final Settlements and creates a new settlement. They pick the employee, pick one of four exitType enums — RESIGNATION, TERMINATION, RETIREMENT or DEATH — enter exitDate and lastWorkingDate (validated so lastWorkingDate ≥ exitDate), and optionally noticePeriodDays from the contract. Inkwelly's Settlement Preview engine immediately calculates every component: pending salary based on actual days worked in the running pay period, leave encashment from the Leave Management balance using calculateLeaveEncashment(), gratuity using calculateGratuityAmount() and getEmployeeTenure() from the joining date, and notice-period recovery using calculateNoticePeriodRecovery() if the actual notice given falls short.
The settlement progresses through six explicit states: INITIATED → CALCULATION_DONE → PENDING_APPROVAL → APPROVED → PROCESSED (and CANCELLED is reachable from any pre-approval state with a captured cancellationReason). HR reviews the calculated breakdown, adds optional otherRecoveries (outstanding loan balance auto-flows in, plus any custom items like asset-not-returned, library-book-not-returned, mess advance) and otherPayments (e.g., pending reimbursement, special bonus authorised by management) as JSON arrays of {description, amount} rows. Inkwelly recomputes grossSettlement = pendingSalary + leaveEncashmentAmount + gratuityAmount + sum(otherPayments) and totalDeductions = noticePeriodRecovery + sum(otherRecoveries) + estimatedTDS. The netSettlement is the cheque amount.
On approval (with approvedBy and approvedAt stamped), the settlement is processed in a payroll run with run-type FINAL_SETTLEMENT. The payslip is generated with isFinalSettlement: true, integrates with Form 16 for the year, separates settlement components from regular salary in TDS reports, and closes any active staff loan or moves remaining balance to write-off based on management approval.
Four exit types Indian schools deal with
- Resignation — voluntary exit; checks notice-period adherence, recovers shortfall if any, settles all components per contract and statutory rules
- Termination — employer-initiated exit; gratuity may or may not apply depending on cause and the Payment of Gratuity Act 1972 provisions
- Retirement — superannuation exit; gratuity is mandatory under the Act if the school is covered, leave encashment usually maximised
- Death — nominee receives the settlement; gratuity payable irrespective of tenure under specific Act provisions; income tax exemption rules differ
See the settlement workbench in action
Gratuity calculated under the Payment of Gratuity Act 1972
Every Indian school covered under the Payment of Gratuity Act 1972 must pay gratuity to staff who complete five years of continuous service. Inkwelly's calculateGratuityAmount() reads the joining date from the Employee Information record, computes tenure to the day, and applies the statutory formula: 15 days of last drawn wages × completed years (with 6+ months treated as a completed year). The cap is honoured per the current ceiling. For death and disablement cases, the five-year continuous service requirement is waived as the Act provides. The result is shown line-by-line in the preview — tenure used, last-drawn wages used, formula applied, capped amount.
Leave encashment from real leave balances
Leave encashment isn't a hand-calculated line item. Inkwelly reads the staff member's actual leave balance per leave type from the Leave Management module — earned leave, casual leave, sick leave — applies the school's encashment policy (which leaves are encashable, how many days are capped per the policy or statutory ceiling) and calculates per-day pay based on the salary structure. The breakdown shows leave type, balance, days encashable, per-day rate and total. No more disputes about "sir mere account mein 25 EL bachi thi, sirf 18 ka encashment kyon mila?" — the math is on screen.
Notice-period recovery, only when there's a shortfall
If the contract requires 60 days notice and the staff member gave 35, Inkwelly's calculateNoticePeriodRecovery() computes the 25-day shortfall and converts it to a recovery using the per-day rate. If the staff member served full notice, the recovery is zero. The HR head can override the recovery with a written reason — management may waive notice in retirement or compassionate cases. The override is captured in the audit log so an internal audit can always see who waived what. The notice-period recovery line is separate from otherRecoveries, so reports can distinguish statutory recovery from policy-based recovery.
Other recoveries and payments — nothing falls through cracks
HR adds custom recoveries and payments as needed. Outstanding staff loans auto-flow into recoveries with the remaining balance. Library book not returned, school-issued laptop not returned, mess advance, uniform deposit — each becomes a labelled otherRecoveries row with description and amount. On the payment side, pending reimbursement, sanctioned bonus, late-paid increment arrears — each becomes an otherPayments row. The settlement totals recompute live. The gross, total deductions, estimated TDS and net settlement are always in sync with whatever HR enters.
“PGT teacher 18 saal pure kar ke retire hui. Pehle hum F&F mein paseena bahaate the. Ab Inkwells pe gratuity, leave encashment sab apne aap calculate ho jaata hai, breakdown teacher ko bhi dikha sakte hain. Cheque dene se pehle dispute khatam.”
Real-world settlement scenarios Inkwelly handles
Scenario 1 — PGT teacher retires after 18 years. HR creates RETIREMENT settlement. Inkwelly calculates gratuity using 18 years tenure, last-drawn basic + DA, statutory formula and ceiling cap. Leave encashment uses 90 days of earned leave at last per-day pay (capped per school policy). Pending salary covers the partial month. Estimated TDS is computed; gratuity exemption under Section 10(10) is applied. Net settlement issued in 24 hours instead of 4 days.
Scenario 2 — PRT resigns with short notice. Contract: 60 days. Notice given: 30 days. Inkwelly auto-computes 30-day recovery from final pay. HR adds outstanding Festival Advance (₹5,000) as otherRecoveries. Library book not returned: ₹450. Pending reimbursement of medical bill: ₹1,800 in otherPayments. Net settlement reflects every line. Teacher signs the breakdown, no surprises later.
Scenario 3 — Lab assistant on probation, terminated for performance. TERMINATION settlement. Tenure < 5 years, gratuity not payable under the Act. Pending salary, leave encashment per probation policy, no notice recovery (terminated by school). Outstanding salary advance recovered. Settlement processed within the same payroll run; staff member receives Form 16 for the partial year.
Scenario 4 — Death of senior staff member; nominee settlement. DEATH exit type triggers nominee details capture. Gratuity is payable irrespective of tenure under the Act's Section 4(1)(c). Leave encashment maximised per humanitarian policy. Outstanding loan written off with management committee approval. Settlement issued to nominee with separate Form 16 marked accordingly. Audit log captures every decision.
What the settlement workbench gives you
- Settlement preview before commit — see every line, edit
otherRecoveriesandotherPayments, recompute live before approval - Six explicit states (INITIATED, CALCULATION_DONE, PENDING_APPROVAL, APPROVED, PROCESSED, CANCELLED) with audit trail at every transition
- Cancel from any pre-approval state with
cancellationReason— useful when an exit is reversed before last working day - Auto-flow of outstanding staff loans into recoveries with one-click write-off option for the management committee
- Run-type
FINAL_SETTLEMENTfor payroll — separates settlement payslips from regular monthly run for clean reporting and Form 24Q quarterly returns - Per-employee settlement history across sessions — useful when an ex-staff returns, or for sister schools sharing the same management trust
- Permission separation —
payroll.settlement.create,payroll.settlement.approve,payroll.settlement.cancelare distinct in IAM
See an exit settled, end-to-end
20-minute walkthrough on a real school dataset — we'll process a retirement, a resignation with short notice and a termination case in one session.
Limits, safety and the small print
A settlement cannot be edited once it reaches APPROVED — if HR finds an error after approval, the settlement must be cancelled (only possible from pre-approval states) and re-created. Approved settlements that have moved to PROCESSED are final; corrections require a separate adjustment in the next payroll run. This protects the school from silent post-cheque rewrites of approved exit packages.
Gratuity calculation respects the Payment of Gratuity Act 1972: the five-year continuous service threshold, the 15-days-per-completed-year formula (with the 6-month rounding rule), and the statutory ceiling cap. For schools not covered under the Act, the school's own gratuity policy applies if defined; otherwise no gratuity line is calculated. Death and disablement cases use the Act's special provisions. Income tax exemption per Section 10(10) is applied to the gratuity component automatically.
The payroll.settlement.create, payroll.settlement.approve and payroll.settlement.cancel permissions are separate in Identity & Access Management. The HR coordinator who creates a settlement cannot self-approve it; the principal or management committee member with approval rights does. Cancellation requires its own permission. All transitions are timestamped, attributed and visible to internal audit. CBSE renewal inspections, EPFO compliance audits and labour-department queries can be answered from a single workbench instead of a folder of separate documents.
Settle exits cleanly, every time
Inkwelly Full & Final Settlement is included with every Employee Payroll subscription. Resignation, retirement, termination, death — one workflow.
किस मॉड्यूल का हिस्सा
1 moduleअक्सर पूछे गए सवाल
7 सवालHow does Inkwelly calculate gratuity under the Payment of Gratuity Act 1972?
The `calculateGratuityAmount()` helper reads the joining date from Employee Information, computes tenure to the day via `getEmployeeTenure()`, applies 15 days last-drawn wages × completed years (with 6+ months treated as a completed year per the Act), and caps at the current statutory ceiling. For death and disablement, the five-year threshold is waived per Section 4(1)(c). Section 10(10) tax exemption is applied automatically.
Does it handle leave encashment correctly when leave types have different policies?
Yes. Inkwelly reads the actual leave balance per leave type from Leave Management — earned leave, casual leave, sick leave — and applies the school's encashment policy (which leave types are encashable, day caps per policy or per statutory limit). The breakdown shows the math line by line so the staff member can see exactly how the figure was derived.
Can I cancel a settlement after creating it but before approval?
Yes. Cancellation is reachable from `INITIATED`, `CALCULATION_DONE` and `PENDING_APPROVAL` states with a captured `cancellationReason`. After approval the settlement cannot be cancelled — corrections must be done as a separate adjustment in the next payroll run. This is a deliberate guardrail against silent post-approval rewrites.
What happens to an outstanding staff loan when an employee exits?
The outstanding balance auto-flows into `otherRecoveries` for the settlement. The preview shows recovery from pending salary, leave encashment and gratuity. If a balance remains uncovered, the management committee can approve a write-off of the loan, moving it to `WRITTEN_OFF` status with the reason captured for audit. Nothing falls through the cracks.
Is the TDS on settlement calculated separately from regular monthly TDS?
Yes. Lump-sum settlements often shift the slab for the exit year. Inkwelly estimates TDS using the same engine that drives Form 16, so the year-end position matches what was deducted at settlement. Gratuity exemption per Section 10(10), leave encashment exemption per Section 10(10AA) for retirement, and death-case exemptions are applied automatically to the right components.
Does it work for death cases where the nominee receives the settlement?
Yes. `exitType: DEATH` triggers nominee details capture and applies special rules: the five-year continuous service threshold for gratuity is waived (per Act Section 4(1)(c)); leave encashment is typically maximised; income tax exemption rules differ. Outstanding loans are usually written off with management approval. The settlement Form 16 is marked accordingly.
How does it integrate with Form 16 for the exit year?
The settlement payslip is generated with `isFinalSettlement: true`, runs under payroll run-type `FINAL_SETTLEMENT`, and feeds Form 16 with separately-tagged settlement components. Form 24Q quarterly TDS return picks the settlement TDS in the right quarter. The staff member receives a single Form 16 for the year covering both regular salary and settlement.
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