Settlement pay for voluntary resignation, calculation and example

Final settlement pay following voluntary resignation is the settlement of any amounts owed by the company when the employment relationship ends because the employee resigns. Even if you resign from your job, you are fully entitled to receive your salary for the current month, the proportional share of any accrued but unpaid extra salary payments and payment for any untaken holiday. However, as this is a voluntary resignation, you will not receive redundancy or dismissal compensation, nor will you have immediate access to unemployment benefits.

What is a final settlement?

A final settlement is the financial settlement document that brings the contractual relationship between the company and the employee to an end. Its main purpose is to settle any outstanding amounts between both parties up to the exact date on which the employment contract ends.

When you sign this document, you declare that the company has paid you all amounts owed up to the date of your departure. It is a mandatory procedure in any type of termination of employment, regardless of whether you have been dismissed or have voluntarily resigned. However, in this article we will focus on the latter case.

What does the final settlement include? A breakdown

First of all, you should know that you have the right to request a breakdown of the items and amounts included in the final settlement. Specifically, it should include the following:

• Salary for the days worked during the month: this includes the remuneration corresponding to the days worked in the current month up to the effective date of resignation.
• Proportional share of extra salary payments: if your extra payments are not distributed proportionally across your monthly salary, the company must pay you the proportional amount you have accrued but have not yet received.
• Untaken holiday: you are entitled to receive payment for any holiday days accrued during the year that you have not been able to take before leaving, together with the corresponding Social Security contributions.
• Overtime or additional hours: any hours worked that are still awaiting payment or compensation through time off must be paid.
• Other outstanding payments: commissions, incentives, allowances or bonuses accrued before the date on which the employment contract ends.

Difference between final settlement and compensation

It is common to confuse these two terms, but they represent completely different legal and financial concepts. In this respect, the final settlement is the payment of outstanding amounts for work already carried out. Generally, this includes the salary for the current month, the proportional share of extra salary payments and payment for untaken holiday. The employee is always entitled to receive it, regardless of whether the contract is terminated at their own initiative or by the employer.

Compensation, on the other hand, is a financial payment made to an employee to compensate for the loss caused by the involuntary termination of their employment, for example, dismissal on objective grounds. The cases in which such compensation is not payable include dismissal on disciplinary grounds and voluntary resignation.

When is the final settlement paid?

Legislation establishes that the company must make the settlement document and corresponding payment available to the employee on their final effective working day. However, in practice, payment is often made by bank transfer on the company's usual payroll date or in the days immediately following the voluntary resignation, once it has been confirmed that the employee has fulfilled their legal obligations.

Final settlement following voluntary resignation

Voluntary resignation is the employee's unilateral decision to terminate their employment contract. Although employees have the right to resign, they must comply with certain formal requirements, particularly the required notice period.

The notice period is usually 15 days, unless the applicable collective bargaining agreement or employment contract establishes a different period. If you fail to provide the required notice, the company is legally entitled to deduct one day's salary from your final settlement for each day of notice not given.

The employee is also required to return to the company, in good condition, any equipment provided for carrying out their work. For example, a computer, mobile phone or company vehicle. If these items have been damaged as a result of misuse rather than normal wear and tear, the corresponding amounts may also be deducted from the final settlement.

Am I entitled to a final settlement if I leave the company?

Yes, absolutely. Resigning does not mean losing the salary rights you have already accrued through your work. The company is required to pay you all outstanding amounts up to your final contracted day.

However, if you voluntarily resign, you will not be entitled to compensation, which is closely linked to dismissal, nor will you be entitled to unemployment benefits. In other words, you will not be able to claim unemployment benefit.

How to calculate your final settlement following voluntary resignation

To calculate your final settlement, you need to add together all outstanding amounts and subtract any applicable deductions, such as advances received or deductions for failure to provide the required notice. These are the steps to follow:

• Calculate your daily salary: divide your monthly basic salary and fixed allowances by 30 (if you receive a monthly salary) or by the number of days in the corresponding month.
• Calculate the outstanding salary: multiply your daily salary by the number of days worked during the month in which you resign.
• Calculate the proportional share of extra salary payments: if they are paid every six months (summer and Christmas), calculate the proportional amount accrued since you received the last payment. If they are annual, calculate the amount accrued since 1 January.
• Calculate untaken holiday: determine the number of holiday days to which you were entitled up to the date of resignation (normally 2.5 days per month worked under agreements providing for 30 calendar days of holiday per year). Subtract any days already taken and multiply the remaining days by your daily salary.
• Apply deductions and other adjustments: apply the corresponding personal income tax (IRPF) withholding rate and Social Security contributions to the salary-related items. You can find this information on any of your previous payslips. Deduct any days for which the required notice was not provided, where applicable.

Example of calculating a final settlement following voluntary resignation

To make this easier to understand, let's look at an example of a final settlement. Specifically, we will use the details of an employee whose voluntary resignation takes effect on 15 April, who has fully complied with the statutory notice period and has a monthly basic salary of €1,500. In addition, the employee receives two extra salary payments per year and has not yet taken any holiday.

Calculating the daily salary

This is calculated by first dividing the total monthly salary by 30. In this case:

€1,500 / 30 days = €50/day.

Calculating the days worked in the current month

As mentioned above, the voluntary resignation takes effect on 15 April, meaning that the employee is entitled to receive 15 days' salary for the current month. Therefore:

15 x €50 = €750.

Calculating the proportional share of extra salary payments

As a general rule, the Christmas extra payment accrues from 1 January and the summer extra payment from 1 July. Therefore:

• Christmas extra payment: this accrues from 1 January to 15 April (105 days). Therefore: (€1,500/365) x 105 = €431.51.
• Summer extra payment: this accrues from 1 July of the previous year to 15 April (288 days). Therefore: (€1,500 / 365 days) × 288 days = €1,183.56.

Total outstanding extra salary payments: €431.51 + €1,183.56 = €1,615.07

Calculating untaken holiday

As mentioned above, the employee was entitled to 30 calendar days of holiday per year worked. To calculate the number of days to which they are entitled for the current year, the following calculation must be made:

(30 days of holiday / 365 days in the year) × 105 days = 8.63 days of holiday.

However, the value of one day's holiday is the sum of the ordinary daily salary plus the proportional amount of the extra salary payments. Therefore:

(€1,500 x 2) / 365 = €8.22 extra per day.

Therefore, the amount payable for the 8.63 days of untaken holiday is:

€58.22 x 8.63 = €502.44

Total gross final settlement

At this point, all that remains is to add together all the amounts calculated above:

April salary (€750) + Proportional share of extra salary payments (€1,615.07) + Untaken holiday (€502.44) = €2,867.51.

As mentioned above, this figure is gross and, therefore, the employee's personal income tax (IRPF) withholding and Social Security contributions must be deducted. In any event, if you have any doubts about the calculation of your proposed final settlement or if the company has failed to include all the amounts owed to you, it is advisable to have an labour lawyer review it before signing it as accepted. Contact us and we will be happy to assist you.