How Recovery Is Triggered
When you initiate a separation in Octal HR, the system automatically scans the departing employee's loan and advance portfolio. If any active balances exist, the F&F module flags them for inclusion in the final settlement.
- All loans with status Active or Disbursed are included.
- Approved but unrecovered salary advances are included.
- Loans that are Closed, Rejected, or Waived are excluded.
- The system uses the outstanding principal as of the last payroll run — it does not re-amortize or charge a prepayment penalty unless your loan type policy specifies one.
Separation Type Rules
Default recovery behaviour varies by separation type. All defaults can be overridden during F&F processing.
| Separation Type | Default Recovery | Waiver Permitted |
|---|---|---|
| Resignation | Full outstanding balance deducted from F&F | With HR director approval |
| Termination (cause) | Full outstanding balance deducted; shortfall recoverable as a debt | Rarely — legal review recommended |
| Termination (no cause) | Full outstanding balance deducted from F&F | With HR director approval |
| Retirement | Outstanding balance deducted; shortfall may be waived per policy | Yes — common for long-service employees |
| Contract End | Full outstanding balance deducted from F&F | With HR approval |
| Death | Outstanding balance deducted from F&F before payment to nominee | Yes — compassionate waiver common |
F&F Settlement Calculation
Octal HR computes the full & final settlement automatically. Outstanding loans and advances appear as deductions before the net payable amount is shown.
Each loan type and advance balance is listed as a separate line item. The system pulls the outstanding balance as of the separation effective date, not the last payroll date — so any mid-month accruals are accounted for.
Shortfall & Waiver
A shortfall occurs when the total F&F entitlements are less than the outstanding loan balance. Octal HR handles this in two ways:
Option 1 — Recovery Agreement
The employee signs a written undertaking to repay the shortfall amount in instalments after separation. Octal HR records this as an external receivable and allows you to track repayments manually under Loans → Post-Separation Recovery.
Option 2 — Waiver
HR directors can waive part or all of the outstanding balance directly on the F&F screen. Go to F&F → Loan Deductions → [Loan Name] → Waive. Enter the waived amount and reason. The waiver is recorded in the audit log and must be approved by the configured authority (default: HR Director).
Processing Steps
Follow these steps when processing a separation for an employee with outstanding loans.
Legal Provisions (Pakistan)
- Payment of Wages Act 1936: Loan recovery from final wages is lawful if authorised in a signed loan agreement. Without a signed agreement, deduction may be challenged.
- Standing Orders Ordinance 1968: Termination with cause does not extinguish the employer's right to recover outstanding loans, but the terminated employee must receive a written notice of any debt claimed.
- Industrial Relations Act 2012: Disputes over final settlement amounts can be referred to the Labour Court. Maintaining a clear audit trail in Octal HR is essential evidence.
- Section 12 ITO (Gratuity): Gratuity is partially exempt from WHT. The exempt amount is PKR 75,000 × years of service. This exemption is not affected by loan recoveries — loan deductions reduce net payable, not taxable income.
Salary Advance Recovery
Unrecovered salary advances follow the same F&F workflow as loans — they appear as a separate deduction line. Unlike formal loans, advances have no outstanding-interest component, so the balance is always exactly the unrecovered principal.
If the employee's F&F entitlements are insufficient to cover the advance, the shortfall options (recovery agreement or waiver) apply in the same way as for loans. Advances cannot be transferred to the loan module after separation is initiated.