Payroll
Settle an employee's end of service
Calculate a leaving employee's end-of-service indemnity and leave payout, save it as a draft, approve it, and mark it paid to close loans and post the settlement.
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In this article
An end-of-service settlement is the final payout to an employee who leaves: the indemnity for their years of service, the value of their unused leave, any amounts you add, minus their outstanding loans and any amounts you withhold. Each settlement moves from Draft to Approved to Paid.
Before you start
The employee's joining date and basic salary are correct on their record. The calculation reads both.
Their leave balances for the year of leaving are up to date, and their loans show the right outstanding balance.
To post the settlement to the books, General Ledger integration is on and the accounts are mapped. See How payroll posts to the general ledger.
Create the settlement
Open People › Payroll › End of Service. The list shows each settlement's number, employee, termination date, reason, gross, net payable and status.
Select New Settlement.
Choose the Employee, then enter the Termination Date, the Last Working Day and the Reason: Resignation, Termination, Retirement, Death, End of Contract or Other.
Select Calculate. The system previews the Years of Service, the Basic Salary, the Indemnity, the accrued leave and its value, the Outstanding Loans and the Gross Settlement. Nothing is saved yet.
Add any adjustments: Notice Period pay, Other Entitlements, and Other Deductions for amounts the company keeps back.
Select Save Draft. The settlement gets its number and the status Draft.
Approve and pay
In the list, open the settlement's Actions menu and choose View to check the Settlement Breakdown.
Choose Approve and confirm. After approval the figures can no longer be changed. Approval also records the termination date as the employee's leaving date, and changes their status to resigned or terminated once that date has passed.
When the money is paid, choose Mark as paid and confirm. This cannot be undone.
Marking a settlement as paid does three things at once:
Loans. The employee's active loans are settled from the loan amount on the settlement, oldest loan first, and closed when their balance reaches zero. Their payroll deduction stops.
Leave. The accrued leave days are consumed from the employee's leave balances for the termination year.
Accounting. When General Ledger integration is on, a journal entry is posted: a debit to the salaries and wages expense account for the gross settlement minus other deductions, a credit to employee loan recovery for the loans the settlement covers, and a credit to cash or bank for the rest. The branch's fiscal year must be open, or marking paid fails and the settlement stays Approved.
What the settlement does not include
The final month's salary is not part of the settlement. It is paid by payroll: once the leaving date is recorded, the next payroll run prorates that employee's salary up to it, as long as they are still Active when you process it. If the leaving date has already passed when you approve or pay the settlement, the employee's status changes and later runs no longer include them, so process their final payroll first.
Common questions
Does the reason change the amount? No. The reason is recorded on the settlement but the formula is the same for every reason. Where your labour law or contract gives a different entitlement, adjust it through Other Entitlements or Other Deductions.
I saved a draft with wrong data. A saved settlement cannot be edited. Do not approve it; correct the employee's data and create a new settlement.