Things to know about the full and final settlement process

January 25, 2023

Full and Final Settlement, popularly known as FnF Settlement, happens when an employee decides to leave, resigns from an organization, or is terminated by the employer. The significance of the settlement policy is to pay all the balance payments to the employees including retirement benefits, bonuses, gratuity, incentives, etc. 

Significant components of FnF:

  • Unpaid Salary
  • Non-availed leaves and bonus
  • Gratuity
  • Deductions
  • Pension

Primary components of the Full & Final Settlement:

Unpaid Salary:

Unpaid salary defines the number of wages paid to the respective employee from the date of the resignation to the last day of work at the organization. 

Non-availed leaves and bonus:

The Settlement includes the salary paid to the employee for the working days between resignation and the last working day. However, the company policy mentions how non-availed leaves are produced. The two methods mentioned in this include:

Per day basic (OR Basic Dearness Allowance OR other components) The employees are paid a part of their salary in a stipulated timeframe (quarterly/ half-yearly/annually). This is settled along with the annual benefits, such as LTA (Leave travel allowances) and other balances.


Gratuity is a monetary benefit given to an employee by the employer for providing long-term service to the organization. The completion period of the employee is to be four years and 240 days within the organization; then, the employer pays the gratuity amount within 30 days of termination from the company. As per the rules, If the organization cannot pay the amount within the stipulated time frame, it is liable to pay the same with accumulated interest. 


Employees avail of the pension benefits by providing the certificate after retirement (or after 58 years of age). Employees receive this pension, as defined under the EPF (Employee provident fund) scheme, with a minimum pension amount of 1000 and a maximum of 7,500. 

Suppose an employee resigns and gets transferred to a new organization. In that case, the Employees who have made a significant contribution during their working tenure in the PF account are benefitted from withdrawing the same after retirement or even early.


Deductions include payable taxes like professional and income tax and contributions like provident funds, etc. Employees also face salary deductions for the shortfall in their notice period. It is noted that leave encashment and the gratuity paid to the employee are exempted from tax deducted at source (T.D.S.). 

An FnF process can become easier if you outsource your payroll to TalentPro. 

When does the Full and Final Settlement take place?

According to the full and final settlement law in India, as per the new wage code under the labour law, the final Settlement needs to be done within two days from the employee’s last working day. It is a standard company policy to complete the process within 30-45 days from the last working day of employees. The FnF settlement process is where the HR department handles all the transactionsThe steps included in the whole and Final settlement process are:

Step 1: Resignation in writing 

The first step of the process must be the employee resignation submitted to the concerned department.

Step 2: Acceptance letter 

After receiving the employee’s resignation, the company sends the acceptance letter back to the employee.

Step 3: Process within HR

The company gets the employees’ no-dues certificate and acceptance letter and then processes it to the HR department.

Step 4: Check leave balance, gratuity, bonuses, and unpaid salary. 

HR will verify the CL/PL, Gratuity payable, and bonuses paid, and then the unpaid salary is calculated.

Step 5: FnF statement 

This is done by the HR department and then further processed by Finance & Accounts.


A complete and final settlement is a long and tedious process with a series of steps involved. If not processed properly, it affects employee satisfaction, which positively impacts the employer’s reputation. TalentPro wraps out the entire Full and final settlement process in a deliverable and hassle-free manner.

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