Severance Pay in India: Do You Get Severance Pay If You Are Fired?

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Getting terminated from a job can be very stressful and disorienting. In addition to the emotional and professional consequences, many workers have the immediate question of whether they’ll be entitled to severance pay if they get fired. 

This is not a question that has a simple answer, however.  

Under the Indian labour law, the payment that a worker receives upon job termination in India depends on various considerations, including the reason for termination, nature of employment, duration of service, type of employee, and applicable labour laws concerning severance pay.  

 For employers, it is equally essential to ensure such payments are calculated correctly as good HR payroll management and statutory compliance in HR in India. Paperwork and compliance with regulations can help simplify the termination procedure and minimize the chances of disputes. HRPro Solution can help businesses implement effective HR and payroll practices, including full and final settlements of employees. 

What is a Severance Pay?

Compensation paid to an employee after termination of employment is often called severance of pay if prescribed by the relevant legislation, employment contract, company regulations, or other applicable arrangements.  

However, the term “severance pay” is not appropriate when referring to all forms of termination compensation under the Industrial Relations Code of 2020. 

For instance, unpaid salaries refer to the salaries for work that have already been done, while notice pay relates to the corresponding notice period. Gratuity is a legal benefit which is subject to fulfilment of eligibility criteria. Additionally, retrenchment compensation is a distinct form of payment which is applicable in cases of qualified retrenchments.  

Therefore, talking about severance pay in India according to the Indian labour law would be more accurate in terms of retrenchment compensation rather than saying that every employee who is dismissed must be given severance payments.

If I Get Fired, Do I Get Severance Pay in India?

As per the Industrial Relations Code, 2020, the key issue is whether the termination comes under the act’s definition of retrenchment and whether the employee is classed as a “workman” under the relevant section. 

As per Section 70 of the Code, a person who has worked for a minimum of 1 year will usually require a written notice for a retrenchment of at least 1 month, stating the reason for retrenchment as well as financial compensation for retrenchment when applicable. 

According to the statutory provisions, retrenchment compensation is generally calculated at 15 days’ average pay for every completed year of continuous service, or part thereof exceeding six months. 

Nonetheless, not all terminations will be classified as retrenchment. Certain types of terminations, such as dismissal for misconduct, when a worker resigns or retires, may create a different set of circumstances. 

Such classification is of utmost importance for the HR staff in any company. HRPro Solution can assist companies in analysing the employee records, termination information, and payroll calculations in view of the final settlements. 

What is An Eligible Termination Payment

The amount of eligible termination payment varies according to the individual circumstances of the employee concerned. As defined under the relevant provisions of the Industrial Relations Code, 2020, a retrenched workman is entitled to statutory retrenchment compensation. 

Other payment obligations might arise from the employment contract and other legal statutes, including: 

  • Unpaid salary 
  • Notice pays or wages in lieu of notice 
  • Retrenchment compensation, if applicable 
  • Gratuity (followed by the relevant laws and eligibility) 
  • Leave encashment, if applicable 
  • Duly settled reimbursements and any remaining dues under the employment contract. 

For HR managers, accurately distinguishing all elements is an essential part of payroll in HR management. HRPro Solutions can help companies organize payroll details and employee records to ensure that calculations are done accurately. 

What is the Full & Final Settlement After Termination

When employees separate from a company, the business needs to undertake a full and final settlement which is often also referred to as F&F settlement. F&F settlement simply refers to the process of determining and settling the financial dues of the departing employee. 

Depending on the situation, F&F settlement may include:  

  • Salary till the last working day 
  • Applicable notice pays 
  • Encashment of leaves 
  • Gratuity, if applicable 
  • Retrenchment compensation, if applicable 
  • Reimbursements and any other outstanding amounts 
  • This is what differentiates full and final settlement and severance pay. 

While retrenchment compensation is one part of the dues of an employee on termination, F&F settlement refers to the overall process that is implemented to settle the financial account of the employees. HRPro Solution allows organizations to follow a structured process for managing employee exits and managing HR payroll.

What is Statutory Compliance in HR in India

Statutory Compliance refers to organization and its employees adhering to the labour laws, wage laws, social security laws, and employment laws.  

According to the Industrial Relations Code, 2020, availability of few points needed some laws to be followed by the employers while terminating any person who is eligible as a workman. An example of the statute compliance in worker termination would be adherence to the laws relating to retrenchment, notice, compensation, gratuity, and wage payment. 

The existing Labour Code has incorporated various earlier laws relating to labour and already came to effect from 21st November 2025 as stated by the Ministry of Labour and Employment. 

The HR department also has to make proper records of employees’ details regarding their service and salary along with termination related documents. Compliance is not only important to get rid of penalties but also creates a defined procedure for any employee or organization. 

Therefore, HRPro Solution focuses on providing an integrated HR system along with payroll and compliance systems. 

Payroll in Human Resource Management: What Does It Include?

Payroll in HR management entails much more apart from the processing of monthly salaries.  

It incorporates aspects such as salary calculations, attendance and leave inputs, deductions, statutory contributions, tax-related matters, payslips, payroll records, and calculations of final settlements. 

When the employee vacates the organization, payroll might be called upon to handle such activities as notice pay, leave encashment, gratuity, or retrenchment compensations, if applicable. 

Thus, efficient HR payroll management is extremely important in ensuring that employees are paid for all due payments required. 

Read More – Third-Party Payroll Services India

Severance Pay vs. Final Settlement: What’s the Difference?

Severance Pay 

Final Settlement 

Specific compensation that may apply in qualifying circumstances 

Overall settlement of outstanding employee dues 

Retrenchment compensation is addressed by applicable labour-law provisions 

Can include salary, notice pay, leave, gratuity and other dues 

Does not apply to every termination 

Generally processed when employment ends 

May form one part of the final payment 

Covers the broader financial closure 

The best way of differentiating between severance compensation and full and final settlement is understanding that the first refers to a certain remuneration while the second stands for the entirety of the procedure of clearing the dues of an employee. 

What Should Employees Check After Being Fired?

When an employee faces the termination process, it is of greater importance for him/her to check what documents have been issued, rather than focus upon the amount of money that has been credited to his/her bank account. 

  • The employee must check the termination letter, the reasons for termination, and the terms of the notice period.  
  • The employee ought to check how long he/she has been working, in addition to the information about unpaid wages, unused leaves, availability of gratuity, and any retrenchment compensation.  
  • The final settlement statement must also be checked to make sure that the items and deductions mentioned in that statement are clear.  

Understanding employee rights after termination can help employees clarify points that seem inconsistent or questionable.

How HR Teams Can Manage Employee Terminations Compliantly

The compliant termination process starts by determining the right cause and category for the termination. 

In cases where retrenchment criteria apply according to the Industrial Relations Code, 2020, it is mandatory for HR to check the employee’s eligibility, status, tenure, and applicable compensation before processing the termination. The HR team should be able to keep accurate records of the date of joining, service history, salaries, notice period, leave balance, and payroll information have been kept properly. 

The final settlement can now be calculated based on the applicable statutory and contractual requirements. Through its HR Professionals Solutions, HRPro Solution will be able to support companies in HR management and employee exit processes, thereby assisting HR efficiently in the process of employee termination.

Conclusion

As per the Industrial Relations Code, 2020, there are provisions regarding notice and payments due to employees retrenched in certain defined circumstances.  

 In case of retrenchment, it is necessary to give one month’s notice or pay in lieu of it, as well as compensation at the rate of 15 days’ average pay for each completed year of service, with the payment for partial year claimed only if it exceeds six months.  

 For employers, it is critical to ensure that termination is properly classified, and the right relevant laws are read, and the payment computation is precise.

Frequently Asked Questions

Yes, notice pay is associated with the specific period of advance notice while severance pay is a separate statutory payment provided that certain conditions are fulfilled.

Statutory compliance refers to the adherence of labor laws, wage laws, social security laws, and employment laws.

 

When referring to payroll, it means salary, taxes as well as contributions, recording of attendance, leaves taken and other payments.

 

Yes, eligible employees may receive gratuity pay subject to fulfilling the statutory conditions of the Industrial Relations Code, 2020.

Final settlement may comprise of unpaid salary, notice pay, leave encashment, gratuity, severance pay or other contractual payments.