Understanding the full and final Settlement Process – Full and final settlement (F&F) is a procedure that is followed by the employer when an employee resigns from an organization. The process involves paying off all the dues and receiving documents from the employee, before releasing him or her from the company.

If you are planning to quit your job, or if you have recently quit your job, then understanding Full and Final Settlement is important because this process will determine how much money you will receive as salary. Additionally, there are many organizations that do not follow a proper full and final settlement procedure. This causes several problems for employees and employers as well. Hence every organization must follow a certain procedure about full and final settlement to avoid legal complications later on. While most employees are just content with looking up fnf full form when they hear about it from their HR after resigning, as a responsible employee you should know every aspect about it. So here we will try to simplify the whole settlement process for you:

The following are the components that are involved in a Full and Final Settlement:

(1) Notice period pay

(2) Leave encashment

(3) Gratuity

(4) Employee Provident Fund (EPF)

(5) Employee State Insurance (ESI), if applicable

(6) Reimbursement of any outstanding bills/expenses

How to calculate Full and Final Settlement?

Below are the steps to calculate F&F settlement:

  • Add: Basic + DA + HRA + Conveyance + Leave encashment (Total of all ESI applicable components)**
  • Deduct All applicable statutory deductions like PT, ESI, TDS etc.*
  • Deduct Any dues towards the company (Compensatory offs not taken)**
  • Deduct Any dues recovered by the company (Advance given by the company)*
  • Unpaid Salary

The full and final settlement incorporates unpaid salary for the current month and any pending payments such as overtime, reimbursements, etc. However, it does not include pay for the notice period unless the employee has worked for the complete duration of the notice period. In some cases where an employee is terminated without a notice period, the last drawn salary can be paid as compensation. When going through the full and final settlement process you should check for yourself if all the above-mentioned information is correct and seek rectification wherever necessary. You might also need to understand things like tin full form of which is Tax Information Network, in order to cross-check and verify all your data.

What are the most important components of full and final settlement?

  • Vacation Pay (Leave Encashment)

The complete and final settlement includes any pending leaves that may have accumulated during employment. In case any unutilized leaves have been credited to the employee’s account, these will be paid at the time of exit.

  • Gratuity

Gratuity is a component of compensation that is offered to employees who have completed a minimum of five years of continuous service with an employer. The gratuity amount is calculated based on 15 days’ basic pay multiplied by a total number of years completed in service. Gratuity is paid at the time of exit only after the completion of five years with an employer. For those employees who have not completed 5 years, they will get gratuity only if they have worked more than 90 days in a year.

  • Paid Leaves

Including all earned paid leaves, full and final settlement is calculated. These leaves are generally paid instead of notice periods. In other words, during the notice period, instead of attending work, you can take leave and get paid.

  • Other Benefits

Any other benefits like Gratuity, Medical coverage etc that may have been mentioned in the employment contract should also be taken into account while calculating full and final settlement.