Full and Final Settlement

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 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 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:

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

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18 thoughts on “Full and Final Settlement (FnF) process in Payroll

  1. 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

  2. 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.

  3. “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

  4. 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.

  5. 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 .

  6. 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.

  7. 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 ?

  8. 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.

    1. 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.

  9. 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

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