Arrears and Settlement
What do you mean by Arrears?
Arrears refers to past salaries that are paid to the employees.
Let us take an example: My Basic was Rs. 3000. My company raised my salary from Rs. 3000 to Rs. 4000. This increment was done from 1st of April. Current I am in May 2006. So along with the May salary, I have to be paid Rs. 1000 (Rs. 4000 - Rs. 3000) extra (i.e. the additional salary for April). this additional salary (Rs. 1000/-) is called as Arrears of April salary.
If the salary is revised from the current month, there is no arrears. If the salary is revised from a previous month, then an arrear is paid to the employee.
The date from which the salary is increased is called as "Effective Date".
Arrear is calculated separately for each component.
What is settlement?
Settlement is a process that is done when employees leave the organization. In some organizations this is also called as "Full and Final" or F&F.
This encompasses calculating the salary to be paid, determining the tax and effecting any recoveries that are due from the employee.
At the end of the process, a settlement slip or report is generated and the employee is paid.
What are the times during when a settlement can be done?
Settlement can be done at any time during the month. If an employee is leaving on 5th of the month, the company can do the settlement on 5th.
Some companies have a rule of calculating the settlement during the regular payroll process.
Some companies may do settlements till 15th outside the payroll. All settlements after 15th may be done along with the payroll.
No method is sacrosanct (correct) and companies follow the method that best suits them.
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