Full and Final Settlement (FnF) process in Payroll
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Full and Final Settlement (FnF) process in Payroll

Hello, in this post we will discuss the Full and Final Settlement in payroll.

What is Full and Final Settlement in Payroll?

Full and Final Settlement commonly known as FnF process is done when an employee is leaving the organization. At this time, he/she has to get paid for the last working month + any additional earnings or deductions. The procedure has to be carried out by the employer after the employee resigns from their services.

The procedure of paying and recovering during the resignation process is called the Final Settlement of the employee.

You can relieve the employee first and then do the FnF or do the final settlement first then relieve the employee. It depends on your company policy.

The major components of FnF are:

  • Unpaid Salary

Unpaid salary includes annual benefits such as LTA (leave travel allowance) and arrears or any salary held due to certain reasons.

  • Leave Encashment

Unpaid leave dues should be paid by or before the 7th and 10th of the following month of resignation.

Payment for non-availed leaves (earned or privilege leave) has to be calculated based on company policy. So, the different options for leave encashment are:

  • Per day Basic (Or Basic + DA OR other components)
  • Fixed amount defined by the company

Calculation of per day basic:

(number of days of non-availed leaves * basic salary) / 26 days ( Avg paid days in a month).

For e.g., If an employee has 25 earned leaves which is not availed and basic salary = 5000, then encashed amount will be

(25*5000)/26 = Rs. 4807

  • Gratuity

As per Section 7 (3) of the Payment of Gratuity Act 1972, Gratuity should be offered within 30 days of the resignation. If you fail to do so you need to pay with interest.

  • Deductions

Deductions include PF, ESI, PT (if applicable), Income Tax, and Compensation for Notice Period not served. Gratuity and encashed earned leave are exempt from tax deducted at source (TDS) as per Income Tax Act. All other payments attract TDS under Section 192 of the Income Tax Act.

When does the settlement happen?

Clearance usually takes time, but it is a policy to clear FnF within 30-45 days after the employee’s last working day.

For gratuity, the stipulation is 30 days after leaving the company, while the bonus must be paid within the specified accounting year.

Points for Employees

  • Make sure to settle any advances taken or ensure it gets adjusted in the final settlement.
  • Make sure to provide all required documents for the process of FnF

Related:

You can also see how it works in Saral Paypack click on the link below:

This ends the post. Let us know your opinion by commenting below.

Manage the complete process of payroll – From employee salary processing to FnF generation with our payroll software.

Check out Saral PayPack.

61 Comments

  • Thanks for sharing it in the blogosphere. Great to know about the final payroll process.

  • nice one…gives a clear picture.

  • I had left the organisation in 2012 but my final settlement in pending is there any legal procedure as they are not responding my mail

    • Hi Mr.Mohammad Ayoub,
      Please approach the labour department with a complaint on the employer.

    • I had left the organization on 12 Jun, 2019. But my final settlement in pending is there any audit pendings as they are not responding my mail. Please give suitable guidance

  • Sir i have question plz solve this

  • I have read informative Final Settlement in Payroll actually I was looking business relative suggestions

    which I have found something’s from here.

    It will be short information but huge informative.

    Thanks for sharing your broaden knowledge I hope you will keep up it.

  • “Gratuity should be paid within 30 days” means what?

    1. Within 30 days after the last working day
    2. Within 30 days after the date of F&F

    Pls reply

    • Gratuity should be paid within 30 days after the last working day

  • Is it OK if a company wants to hold back some part of the salary – when an employee resigns – to be paid with the Full & Final Settlement? This is for one of my clients. They are facing a problem that employees resign, wait till the end of the month to take their salary and then abscond – they are not bothered about getting a relieving letter etc. So they wanted a policy wherein they would pay 15 days salary when someone resigns and the balance would be paid to the employee along with the full & final settlement which they would ensure would be done within 30 days after the LWD.

  • I had left premier world technology limited (Alipore-Kolkata) on february 2019. Almost 4months over but company still not pay my full and final also not responding my mail & phone calls. Please suggest if any solution .

    • Please approach labor court

  • Dear Team
    I want to know that, Is any GST Applicable on full and final amount to the Employ. if Employer is goingo Impose the GST over the Full final Settlement. Please suggest on this.

  • Sir , I left suzlon on 4 march 2019, its 5 month but not give full and final settelment.
    Whenever I call HR he told it is in process, my colouge who leave company after me they got their F&F.

    What should I do ?

    • Hi Ankur Jain,
      Please contact your HR again. If no response then file a grievance in Labour Dept.

    • I have resigned from my organization on 28 Dec 2020. But my organization has not cleared my F&F yet, nor they are responding my emails.
      Please suggest for the next.

  • Hello. Good Job!

  • As far I know gratuity is calculated base on the last drawn salary plus DA. I want to know what will be considered for calculating gratuity of an employee if he take LWP (Leave without payment) in the last working month due to some personal issues and gets no salary or a very negligible amount.

    • Hi Mithun,
      Here last drawn salary is not his/her last earning salary, but actual salary. Hence, even if the employee is on LWP, the full Basic and DA amount will be considered for gratuity payment.

  • Hi if the total gross leave for an employee per year is 24 and if he leave the company within 5 months and no leave taken during 5 months , in this case what should be leave benefit amount to be given to the employee,

    24/12*5 = Total 10 or total 24 days benefit needs to be given to employee

    • Hi Ushal,
      Leave to be given only for the no. of months the employee has worked in the company. Hence, it will be 10 Nos. for 5 months.

  • Very good info dude.

    • Thank you for reading and commenting. We are glad this blog was useful to you.

  • sir,
    i relieve my job on feb 2019. our md is given two months salary to me, i thanks to him. but settlement is pending, where i approach my grievance, i worked for nearly 7 years. i think i am eligible for my settlement. please guide to me.

    • Please speak to you MD on the settlement process

  • Hi,
    I was working in a hospitality startup. Joined on 15th May and left on 15th Oct as the company shut down the project i was working for.
    They would always release salary by the end of the month or even sometimes in the mid next month since i joined.
    I am yet to received my salary for the month of Sept and my FNF settlement along with my exit document procedure.

    I have been following up with HR and Finance through phone as well as mails but have’t received appropriate response.

    kindly suggest me on what can be done further.

    • If the process is long pending, then please approach the Labour Court.

  • Dear, Tell me When employee is quit the job and they get PF benefit in f and f process.

    • Yes, PF will be applicable on F&F. But the contributing amount will only be the salary of the last month.

  • Hi sir,

    My last working is completed. they said FnF will be credited in 45 days but they didn’t done it. After 60 days when i ask them means they said we will provide only 30,000/-
    but My CTC is 35000/- they wont paid 45 days my salary part still. how did I Approach furtherly. will you please suggest me.

    • Hello,
      Please check if there were any deductions were made during fnf. If not, then contact your employer with your HR in the loop.
      In case they do not respond, then lodge a complaint with labour court.

  • I resigned from the company on 02nd Jan 2020 and wasnt absent on notice period day. I served the notice period of 10 days(not 15) and my last working day with the company was 11th Jan 2020 as my new organization wanted me to join on 13th Jan 2020.
    When should I expect my FnF ideally & they are not willing to give me my experience letter.

    • Your F&F has to be made by 45 days. As for your Experience letter, please check with your HR.

  • Hi,
    I was working with one of the best hospitality industry in India, I was working with them for 6 years, after working with that organisation I have resign and served notice period of 2 month to the organisation, on the last day I got my experience letter, they said it will done very soon, they were talking about my F&F, but now it is 53 days, now they are telling it will take some more time, If I call for update they are not picking up my call or neither responding on my SMS….I have spend my valuable 6 years with them, I was working as a managerial post….Please suggest me what should I do….I have already working with a good company Presenly, Kindly guide me….

    • Please approach the employer in person, one last time and ask for the update. Else, you can approach the labour court.

  • Nice info.

    I was re-signed on relieved on 31 Dec 2019.
    Now it’s almost 67 days and my salary not yet released. Mail dropped several times to HR but there is no response

    • Please try the last time and if no response please approach the labour court.

  • If employee not contact for f and f to organization so how many days/month or year company not claim settled employees f and f

    • Generally, the F&F is processed within 30-60 days which may vary from one to another organization.

  • Hi ,
    please help me fast
    I had to abscond a mnc due to unavoidable circumstances and i had informed my project manager and senior consultant also they told me its your call after a month i recieved a mail asking for fnf of 66k nd when i called the hr he told me you should have seen the offrr letter before signing .i have the recent call recording of the hr. I have worked only 5 days and left
    what actions will the mnc take against me and what should i do to avoid any actions
    its been two months now theres no notice at my home or anything

    • The company has the rights to take action as per the company policy signed by you during your joining formalities. Please go through the same. It will be available in your Offer/Appointment letter too.

  • Hi, I’ve 2 questions.
    1. If an employee resigns in a month that has Saturday and Sunday as its last days, does the company has the right to deduct those two days from that month’s salary?
    2. Can the company hold entire last months salary and pay it along with full and final settlement? Note that the employee hasn’t taken any advance and owes nothing to
    the company.

    • 1. No, the deduction will not be considered valid
      2. Yes, the salary and FFS can be done together.

  • when my company made my f&f ,campany made payble amount as per my net salary & leave recovery made on the basis of my ctc,is this right?

  • Hi Sir, I left my job in February and I had received my fnf but my employer had deducted Uniforms Allowances of rs 15k from fnf…please suggest what is the remedy for me to recollect that amount? Are employer application for deduction?

    • Please check whether the allowance is deductible from your salary which will be given in your employment policy. After that you can verify the same with your HR.

  • Hi,
    i wanted to know the below please suggest me.
    When a employee resign, if the employer has accepted his resignation and they wanted to relieve him by paying three months gross salary as notice pay.
    My query is that the 3 months gross salary which they are paying is attract PF and ESIC ??
    His last working day as per the records June 30,2020.

    • Yes, Notice pay will attract PF & ESI. Last Working day will be the date of relieving.

    • HI,
      i want to know the below please suggest me.
      1.can company directly send full and final settlemet cheque to the employee and refuse to show full and final settlemet calculaion?
      2.if employee wants to know about his full and final settelement calculation and company still refuse to show to employee then what should he do?

      • Employer has to get the FnF calculation confirmation from the employee before finalization. Please contact your HR/Pay Officer on same.

  • If an employee leaves the organization in the midst of financial year , are we supposed to pay him bonus on prorata basis at the time of settling his full & final account ?
    Otherwise , when is bonus component for that year payabl

    • Bonus has to be paid in the FNF.

  • Hi sir was wanted to ask I have been terminated since April 1 and I have completed 2yrs 6months am staying outside no accommodation and they give me my settlement 1075 riyal only with no money of accommodation I have credit of the room rent and the company they dont want to pay what will I do and I already tell them bt no respond until now

    • Sir, As we see this is the payroll system of a different country on which we do not have any information.

  • Is there any law for leave encashment at the time of Fnf. Is it mandatory for company to encash earned leaves at the time of FNF

    • Yes, all encashable leaves have to be encashed during FnF.

  • I was relieved from my duties on an immediate basis and was promised 2 months’ notice pay from my firm. They have sent me an FnF calculation for review which doesn’t mention PF deduction and employer contribution as well. Can you help me with which specific rule which I can give them as support that they should pay the PF and deduct from my portion as well from the two months’ notice pay?

    • Notice pay will not attract EPF as it is not considered as a Wage as per PF act.

  • Hi was working with jfl restaurant manager I was terminated by the company it past 37 days my fnf not released by the company every time HR are replying that it is processed by there end please suggest how much time it will take

    • Generally, FnF is to be done by 45 days or as per company policy. Hence, you can wait for few more days.

  • Hi team, this is a request to process my full and final payment which is due with Company, my details are – Emp Name- Pankaj VishwasGaikwad, Emp id – 5024790, Dep – High Mark Process, Designation – Senior Advisor, Total work time – 3 years and 2 months, Resignation Date – 30th Sep’20, Last Working Day – 1st Nov’20 !!

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