Leaving Your Job: What Should You Know About the Full and Final Settlement Process?

Hi Prativa,

Please help me understand the full and final settlement process when leaving the company. What factors should be considered during the final settlement?

Thank you.

Hi Prativa,

During the preparation of the Full & Final settlement of an employee, we have to keep in mind the payable salary and total deductions. In the payment, we have to consider the salary status, the leave status, and any applicable bonuses. On the other hand, in the deduction part, we include any advances taken, Notice period recovery if applicable, and any other liabilities the employee has with the organization.

For example, if an employee's gross monthly salary is Rs. 10,000, and he resigns on the 1st of July with a notice period until the 31st of July as his last working day with the organization, and he has 15 earned leaves in his account, then while preparing the Full & Final statement, we have to pay him the complete month's salary, the earned leaves amount, and any applicable bonus according to the HR policy.

Regarding deductions, we consider the PF amount, ESI deduction, and any applicable Notice period deductions.

I hope this clarifies the process for you.

Regards,
Amit Seth

Hi Prativa,

If your company is paying incentives, then you should definitely include incentives in the payable amount.

Regards,
Amit Seth.

Hello Prativa,

While doing full and final settlement, the following steps should be taken:

1. Check his/her appointment letter for the notice period clause (level-wise may differ).

2. Then decide when to relieve him.

3. Determine whether to relieve by adjusting leave (PL) balance towards his notice period or not (in some companies, they encash the leave balance and recover the full notice period, which is actually not a good practice).

4. Next, check his leave balance - whether he has taken extra leaves or not. If yes, then recover through F&F. Calculate his PL leaves for the period he worked during the current year.

5. Check what his salary will be for the current month - if there is not enough leave balance for recovering NP, you can adjust his net salary towards NP.

6. Always calculate the amount of the notice period on the gross payment for the month (Basic+ other allowances that are paid in salary).

7. Then, check whether there are any pending amounts like LTA/Medical and also check whether by any default you paid him extra. Some companies pay LTA/Medical in advance, so in such cases, you have to deduct the amount or pay as the case may be.

8. Check the total number of years of his service for calculating Gratuity. You have to pay him only if he completed 5 years of service in your company. For this clause, please check the Gratuity Act. The formula for this is ((Last Basic + DA) / 26 days) * 15 days * number of years completed.

9. Calculate his bonus amount. For the payment of Bonus, there are two options - you can pay him a bonus in his full and final settlement or you can pay him a bonus during Diwali time. There is a clause in the Bonus Act by which you can pay a bonus to ex-employees within eight months from the date on which you paid to your current employees after taking such an application from them.

This is a really important procedure, so please handle F&F with care.

Hope this information helps you. For any further clarifications or formats, please email me at limaye.kedar@rediffmail.com or kedar@hpfl-india.com.

Best Regards,

Kedar

Hi Kedar,

The points given by you are very informative. I'll take care of all these things at the time of doing f & f settlement.

Prativa

Dear Vinay,

Kindly find the attached formats.

With best regards,

Kedar

Dear Hemant,

Kindly find the attached files.

With Best Regards,
Kedar