What is Full and Final Settlement (F&F)?

Amounts payable usually include salary for days worked in the final month, encashment of unused leave that your policy or the law allows, any bonus or incentive already earned, gratuity where the employee qualifies, pending reimbursements and, where the employer ends employment without notice, pay in lieu of notice. Some items depend on eligibility rules, such as gratuity or a pro rata bonus under the bonus plan, so check each one against the policy or the law before adding it.

Deductions usually include notice pay for a period the employee did not serve, where the contract allows recovery, outstanding loans or salary advances, the value of company property not returned, and tax due on the settlement.

The settlement equals total dues minus total recoveries. Take an employee who leaves on the 15th of the month with a monthly salary of 60,000. Salary for 15 days at a 30-day divisor is 30,000. Ten days of unused leave at 2,000 a day adds 20,000, and a pending reimbursement adds 5,000, so total dues are 55,000. If they owe a salary advance of 10,000, the net settlement is 45,000 before tax.

In India, the Code on Wages, 2019, in effect since 21 November 2025, requires wages to be paid within two working days when an employee is removed, dismissed, retrenched or resigns, or becomes unemployed because the establishment closes. The Occupational Safety, Health and Working Conditions Code, 2020 sets the same two-working-day limit for wages in lieu of unused leave when a covered worker is discharged, dismissed or quits.

The appropriate government can prescribe a different time limit, and gratuity is not part of wages under the Code on Wages, so it follows its own rules. Under the Code on Social Security, 2020, fixed-term employees become eligible for gratuity after one year of continuous service. Confirm the rules notified for your state before you set your settlement timeline.

Alongside the payment, employers usually issue a settlement statement listing each item, a relieving or experience letter, and the tax documents the employee needs. Common mistakes are holding the settlement until every clearance step is finished, using one daily-rate divisor for salary and another for leave, missing variable pay already earned, and leaving the tax treatment unexplained. A short exit checklist covering the last working day, notice served, leave balance, open claims and company assets keeps each settlement consistent.