The final settlement is where employment relationships are quietly shortchanged, because the employee is usually focused on leaving and the employer controls the calculation. Knowing the full list of components, and what the clearance form actually does, is worth a considerable amount of money.
The components
- Salary to the last working day, including any unpaid prior months.
- Notice pay. Where the employer terminates without giving the contractual or statutory notice, pay in lieu is due. Where the employee resigns without notice, the employer may be entitled to deduct - but only what the contract provides.
- Encashment of earned leave. Accrued annual leave not taken is generally encashable at the last drawn wage, subject to the applicable Standing Orders and the service rules on accumulation.
- Gratuity, where the establishment is covered by the Standing Orders and no recognised provident fund substitutes for it - thirty days' wages for each completed year of service, and for any part-year exceeding six months.
- Provident fund. The employee's own contributions with accrued profit, and the employer's contributions with profit, subject to the fund's vesting rules.
- Bonus accrued for the period worked, where the establishment pays one under the applicable law or by consistent practice.
- Reimbursements - outstanding expense claims, medical reimbursements, travel claims.
- Overtime that remains unpaid.
- Any commission or incentive earned before the exit date, even where it is payable later.
What can lawfully be deducted
Deductions from wages are regulated - historically by the Payment of Wages Act, 1936 and now by its provincial successors - and an employer cannot deduct whatever it likes. Permissible deductions are broadly:
- Statutory deductions: income tax, EOBI and social security contributions
- Provident fund contributions
- Recovery of advances or loans actually given, on the agreed terms
- Deductions for damage or loss directly attributable to the employee's neglect or default - and only after the employee has been given an opportunity to show cause
- Notice shortfall, where the contract provides for it
What cannot lawfully be deducted: a penalty for resigning, a training-cost recovery not agreed in writing, or an open-ended "damages" figure imposed without inquiry.
The clearance form
Most employers require a clearance or "no dues" form to be signed before releasing the cheque. Read it. These forms frequently contain a full and final discharge - a statement that the employee has received all dues and has no further claim against the company.
Signing that when the calculation is short is not fatal to a later claim, but it is a real obstacle: the employer will produce it, and you will be arguing that you signed under economic pressure without the calculation in front of you.
Practical approach:
- Ask for the calculation sheet in writing before signing anything, showing each component and each deduction.
- If a component is missing, write on the form that the settlement is accepted without prejudice to the claim for the missing item, and keep a copy of what you signed.
- Do not sign a blank or partially completed form.
The experience certificate
Withholding an experience certificate as leverage is common and improper. The certificate matters for EOBI records, for future employment and for proving service in any later claim. Ask for it in writing, and treat its refusal as part of the grievance.
If the settlement is withheld or short
- Written demand to the employer with your own calculation, itemised, and a deadline. Keep proof of delivery - this fixes the date for the grievance period and for limitation.
- Grievance notice under the applicable Industrial Relations Act. The statutes require the grievance to be raised with the employer within a defined period from the cause of action, commonly ninety days, before the Labour Court can be approached. Missing it is a technical defence that defeats good claims.
- Labour Department - the provincial labour inspectorate can intervene, and many claims settle here without litigation.
- Labour Court under the applicable Industrial Relations legislation, for a workman.
- For staff outside the definition of workman - many managerial and supervisory employees - the claim is contractual and lies in the ordinary civil courts as a suit for recovery.
Keep these documents
Whatever your intentions on leaving, keep: the appointment letter and any revisions, the last twelve payslips, the resignation or termination letter, the leave record, the provident fund statements, the experience certificate, and any correspondence about the settlement. Reconstructing them after the fact is difficult and employers do not readily provide them once a dispute has started.
This article describes the general position on final settlement in Pakistan. Entitlements depend on the province, the applicable Standing Orders, and whether the employee is a "workman". It is not advice on any specific case; consult an advocate.