Full & Final Settlements: All You Need to Know

full and final settlements

Full & Final Settlements commonly known at the FnF process is the procedure required to be followed by the employer after the employee has resigned from his/her services. The procedure is fairly simple and is as per guidelines set out in the appointment contract.

As a leading HR & Payroll Company consulting small and medium businesses Pan-India on things HR, Payroll & Compliance related ; exit formalities are something most companies remain clueless about. This week’s post draws light on the major components that are  part of Full & Final Settlement Statement.

Major Components that are part of the Full & Final Settlements

1. Unpaid Salary

The full and final settlement includes the unpaid salary for the number of days for which the employee has worked for since his resignation date and his last working day. Unpaid salary including annual benefits such as LTA ( leave travel allowance) and arrears which is calculated as the number of days for which salary is to be paid multiplied by the gross salary divided by 26 (paid days in a month).

2. Non-Availed Leaves & Bonus

As per Section 79 (11) of the Factories Act 1948 all unpaid leave dues should be paid by or before the 7th & 10th of the following month of resignation. As per Section 15(3) of the Karnataka Shops & Commercial Est. Act leave encashment dues should be settled by or before the 7th & 10th of the following month.

Payment for non-availed leaves (earned or privilege leave), which is calculated as the number of days of non-availed leaves multiplied by basic salary divided by 26 days (paid days in a month).


As per Section 7 (3) of the PG Act 1972 Gratuity should be offered within 30 days of the separation or else it will have to be paid with interest if four years and 240 days have been completed by the employee.


Deductions include Profession Tax (if applicable), Provident Fund, Income Tax and Compensation for Notice Period not served. Gratuity and cashed 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. As per Section 72 (5) of the E.P.F Act 1952 the Employer shall forward the E.P.F claim forms within 5 Days of the employee submitting the claim.

5. Pension

Pension, as long as the employee has completed at least 6 months of service with the existing employer and 10 years of ‘pensionable service’ on providing a Scheme Certificate after retirement (58 years) age.

When does the settlement happen?

Going strictly by the rules, the final settlement needs to happen on an employee’s last working day at the organization. However clearance usually takes time, it is a policy to do so within 30-45 days after employee’s last working day.

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

Note to Employees

There are few things that employees must keep in mind to ensure there are no complications in the process. Make sure to settle any advances taken or ensure it gets adjusted in the final settlement. This will also ensure that there will be no complications when you join another organisation.