Full and Final Settlement (F&F): Process and Timeline Explained
Full and final settlement pays everything owed to a leaving employee: unpaid salary, leave encashment, gratuity if eligible (generally after five years), pending bonus and reimbursements, less any notice shortfall, loans and unreturned assets. Under the new labour codes, dues are generally payable within two working days of the last working day, so build the calculation into payroll.
Full and final settlement, or F&F, is the process of working out and paying everything owed to an employee who is leaving. Errors and delays are among the most common sources of disputes after exit.
What goes into the calculation
| Item | How it is worked out |
|---|---|
| Unpaid salary | Pay for days worked in the last month, plus any arrears |
| Leave encashment | Unused earned leave, as per policy and state rules |
| Gratuity | Due if the employee qualifies, generally after five years of service |
| Bonus and incentives | Any amount earned and not yet paid |
| Reimbursements | Approved claims that are still pending |
| Notice period | Recovery if the notice was not fully served, or pay if you waive it |
| Recoveries | Loans, advances and unreturned assets |
| Tax | TDS on the payment as part of salary |
An example
Take an employee leaving on the 18th with ₹36,000 monthly pay, 10 days of unused leave and a ₹6,000 advance outstanding. Pay for 18 days is ₹21,600. Leave encashment at a daily rate of ₹1,200 is ₹12,000. Less the advance of ₹6,000, the settlement is ₹27,600 before tax, assuming no other items.
Timelines
Under the new labour codes, wages are generally due within two working days of an employee's last working day, which gives little time for a manual process. Gratuity must be paid within 30 days of becoming payable. Check the rules in your state and in your policy.
Steps to follow
- Confirm the last working day and the notice position in writing.
- Collect clearances from IT, admin, finance and the manager.
- Calculate each item from the same attendance, leave and payroll data used during employment.
- Get a second person to check the figures.
- Share the statement with the employee, and pay by bank transfer.
- Issue the relieving letter and experience letter, and update the PF exit date.
Common mistakes
- ✓Holding the settlement until the employee returns every asset, with no time limit
- ✓Using the wrong salary base for leave or gratuity
- ✓Missing the tax on the final payment
- ✓Forgetting the employer's PF and ESI obligations for the last month
- ✓Deducting more than the law allows from final dues. Check the rules before you recover large amounts.
Why automate it
Doing the calculation again from scratch at exit is where mistakes appear. When it runs from the same data as monthly payroll, the two-day timeline becomes realistic.
Written by
HR Manager, Airwix Technologies (Sleet)
Nihit Dobariya is the HR Manager at Airwix Technologies in Ahmedabad, where he runs HR and payroll for the team behind Sleet. He writes about payroll, PF and ESIC, professional tax, the labour codes and everyday HR practice for Indian employers, and checks each rule against the official notification before it is published.
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