A Complete Guide to Full and Final Settlement (FnF)

Full and Final Settlement - Paytm for Business

Following the impact of the pandemic, voluntary resignations have surged at an unprecedented rate since 2021. The period of the Great Resignation can be tied to several underlying factors, like low pay, lack of opportunities for advancement, and feeling disrespected at work. If there is something that employees look forward to amidst all the chaos, it is their Full and Final settlement from the organization they left or are in the process of leaving.

Getting paid for the hard work even while leaving different organizations holds significant importance at different stages of employees’ careers. On the other hand, it is equally important for the employers to take care of the necessary formalities to ensure easy exit for employees. 

In this post, we will cover the Full and Final settlement in detail and cover various related aspects. 

What is Full and Final (FnF) settlement?

FnF settlement refers to the process of calculating various dues payable to an employee who has resigned, retired, or been removed from an organization. It does not only include the calculations as per the salary drawn till the last working day but also deductions or additional earnings.

Here are a few other things you should know about the full and final settlement process:

  • It may also include exit interviews or feedback surveys that help an employer in evaluating the company’s strengths and weaknesses. 
  • FnF settlement is also useful in tracking resources and other privileges allocated to an employee and recovering possession of the same before his/her last working day.
  • The full and final settlement policy of one organization can be different from the other. 

Major components of the full and final settlement dues

  • Outstanding/unpaid salary

In general, the employers are bound to pay the salary of employees for the previous month by the 7th or 10th of the following month, as per the government rules. However, in case an employee resigns from his job position, the salary payable till the date of resignation needs to be calculated.

The final unpaid salary also includes various annual benefits given to employees (like LTA) and other arrears. The calculation of the total outstanding salary will be based on the company’s full and final settlement policy.

  • Unavailed privileged leaves and bonuses

Other than the casual leaves, employees also get earned or privilege leaves during their tenure for continued service with an organization. While the number of leaves may differ from one company to another, these leaves can be encashed at the time of an employee’s exit. 

Here again, the terms and conditions for leave encashment may vary from one company to another.

Similarly, employers also offer bonuses for special occasions or exemplary performance of some employees. The cash equivalent of these bonuses is also paid during FnF settlement.

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  • Employee Provident Fund (PF) or Pension

In most cases, a part of the employee’s monthly salary is deducted and then contributed to his/her PF account. At the same time, the employer also contributes the same amount to his account, thus enabling the employees to build a corpus for their future. Similarly, there can be a pension fund contribution as per the company’s policy. 

If an employee resigns to move to a new organization, the PF is transferred to the new employer and the monthly contribution process continues as before. Individuals having a significant contribution to their PF account during their working tenure can benefit from withdrawing the same after retirement or even before that if needed.

  • Gratuity 

Gratuity benefits are payable to the employees who have worked for an organization for at least 4 years and 10 months in continuity. If they resign from the job or are terminated after completion of this period, they are entitled to receive gratuity payment within a month. If there is a delay of over 30 days in receiving the gratuity under the full and final settlement, they are entitled to receive interest.

  • Other deductions from FnF settlement

Any tax liability related to the FnF settlement is chargeable to the amount payable to the employee as per the full and final settlement law in India. For example, a TDS is deducted from the taxable components as per the Income Tax Act, 1961. 

Major activities involved in the full and final settlement

This process consists of several clearances that an employee has to take from various departments, like accounts, IT, etc. Let’s cover them all in detail.

Clearance TypeDescription
IT Clearance
  • It involves returning the IT assets given by the company, such as laptops, monitors, etc.
  • This is generally done on the last working day of the employees in a company.
  • In case the given assets are found to be damaged, the related amount is recovered from the employee FnF.
Financial ClearanceIt involves checking any outstanding reimbursements, expenses on the company’s card, etc. This includes various components of FnF settlements mentioned above.
Admin ClearanceThis involves giving back the employee ID card or similar other assets that are used for entry/access.
HR ClearanceThis is related to getting a final sign-off from the HR team members after serving the notice period.

Full and final settlement payslip format

With reference to the resignation submitted by an employee, the employer will issue a full and final settlement letter. While there is no specific format for this payslip, companies often generate an FnF settlement payslip that includes the following details:

  • Employee name
  • Employee ID
  • Resignation date
  • Reason for leaving
  • Details of the total amount FnF settlement amount payable to him/her

More about the full and final settlement for employers

Given below are certain crucial pointers that employers must keep in mind while calculating the FnF settlement amount:

  • The settlement amount should be calculated as per the prevailing laws.
  • It is important to maintain clear records of all correspondences with the employees.
  • FnF settlement should be done within a reasonable period after the last working day of the employee(s).
  • TDS needs to be deducted from the taxable income, if any.
  • A detailed FnF settlement payslip should be provided to the employees.

Conclusion

Full and final settlement is a well-organized, detailed process followed in every organization. When done in the right way, it not only helps in the smooth exit of employees but also helps the employers in preventing any financial hassle later. In an ideal scenario, the HR departments facilitate various activities related to the process between all the stakeholders and resolve issues if any before the last working day.

FAQs

When does the full and final settlement take place?

It is a common practice to finalize the FnF settlement process within 30-45 days from the last working day of an employee, irrespective of whether he has resigned or is being terminated. In case the employer fails to get things done on time, the employee has the right to contest for the same legally.

How long does it take to process the FnF settlement?

Although there is no pre-defined date for the FnF settlement, it is advisable to consider 30-45 days as the ideal period to clear the full and final settlement amount.

What will happen if the employer does not process the FnF settlement on time?

In such cases, an employee can take legal action against the employer and ask for the penalty related to the delay in payment. Besides this, he/she can also file a police complaint if the organization they worked for fraudulently avoids paying the final amount.

Are FnF settlement and employee clearance the same thing?

Employee clearance is a part of the entire FnF settlement process.

What is partial payment in the full and final settlement process?

Some organizations continue the employee’s payroll as per the salary schedule while withholding the last working month’s salary. This is often termed as a partial settlement.

What is batch settlement in FnF?

When employers have to deal with several resignations or lay-offs, they prefer to approach the settlement process in batches, thus helping them process the FnF amount of multiple employees at once.

 

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