What is full and final settlement?
When an employee resigns, retires or is relieved, the employer prepares a full and final (F&F) settlement — a statement of everything still payable to the employee less everything recoverable from them. Under the Code on Wages, 2019, dues must be paid within two working days of the last working day. A correct F&F protects the employer from labour claims and gives the employee a clear record for tax purposes.
Components
- Pending salary — gross × days worked in the last month ÷ days in month, plus any earlier arrears.
- Leave encashment — unused earned leave × per-day pay (Basic + DA ÷ 30 is common).
- Gratuity — 15 ÷ 26 × last Basic + DA × completed years, if service is 5 years or more (a fraction above 6 months counts as a year), capped at ₹20 lakh.
- Pro-rata bonus — 8.33% of ₹7,000 per month worked, if Basic + DA ≤ ₹21,000.
- Notice pay — paid to the employee if the employer waives notice, or recovered if the employee leaves early.
- Deductions — PF on pending salary, professional tax, TDS, loans, advances and asset recoveries.
Worked example
Gross ₹45,000, Basic + DA ₹22,500, joined 10 June 2019, last day 9 June 2026 (7 years), full last month worked, no leave balance, no notice shortfall. Pending salary ₹45,000; gratuity = 22,500 × 15 ÷ 26 × 7 = ₹90,865.38; net F&F = ₹1,35,865.38 before TDS. Add 12 days of leave at ₹750 per day (22,500 ÷ 30) and the payout rises by ₹9,000.
Tax treatment
Gratuity up to ₹20 lakh and leave encashment up to ₹25 lakh are exempt for non-government employees; salary, bonus and notice pay are fully taxable. The employer must deduct TDS on the taxable portion and issue Form 16 for the year.
Frequently Asked Questions
Within how many days must F&F be paid?
Two working days from the last working day under Section 17(2) of the Code on Wages, 2019; earlier practice allowed 30–45 days, which many employers still follow where the Code is not yet notified.
Is gratuity payable for 4 years 8 months of service?
Courts (Madras High Court in Mettur Beardsell) have held that 4 years and 240 days counts as 5 years for gratuity. The calculator applies this rule; check your state and company policy.
How is notice pay recovery calculated?
Shortfall days × per-day salary. Most companies compute it on gross; some use Basic + DA. Choose the basis in the calculator as per your appointment letter.
Is leave encashment on resignation taxable?
For non-government employees it is exempt up to ₹25 lakh (lifetime) under Section 10(10AA); any excess is taxed as salary.
Disclaimer: This tool is for general information and estimation only. Tax rates and rules change — verify with official sources or a professional before acting. Read full disclaimer.