Understanding Full and Final Settlement: What Gets Added, Deducted, and How Gratuity is Calculated?

Dear colleagues,

Could you please provide me with some ideas on Full and Final Settlement (FFS)? I am interested in understanding which amounts are added and which are deducted when processing an FFS.

Additionally, could you please share a standard format of an FFS as an example?

Furthermore, I would like to know how gratuity is calculated. Is it based on the employee's joining date or confirmation date?

Thank you for your assistance.

Hi,

Full and final settlement will include salary payable for the days the person has worked. This will also cover other components such as fuel reimbursement (as per eligibility if the proper supporting documents are provided), leave encashment, gratuity, and any bonus if it is a part of CTC.

Deductions will include PF, ESIC, PT as per applicability, TDS (if any), and any other recoveries such as loans, advances, etc.

Gratuity becomes applicable after completion of five years of continuous service, calculated from the date of joining.

For any queries, please feel free to write to me.

Regards, Enjoy,
Harshad

Hi!

a) Full and Final settlement includes the following:
- Unpaid salary less notice period not served
- Encashment of Unavailed LTA
- Encashment of balance PL
- Gratuity payment
- Superannuation payment if claimed and as per procedure
- Processing of PF transfer forms/PF settlement
- Recovery of deductions for the last month, if any
- Recovery of pending loans or any other pending amounts to the Company

b) Gratuity calculation:
Eligibility - 15 days for every completed year of service.
For computing completed years of service - take the period from the date of joining till the date of resignation. The period in excess of 6 months is to be rounded off to the higher year. For example, 15 years 7 months to be rounded off to 16 years.
Calculation:
(Basic salary / 26) x (Completed years x 15)
Thus, a person with a basic salary of Rs.10,000 and 10 years completed will get gratuity as:
(10,000 / 26) x (10 x 15) = Rs.57,692/-

Regards,
P. Arun Kumar

Hi,

Regarding your query about the format, you can prepare your own. On the top, you can give the name of the employee, designation, department, date of appointment, date of leaving, and salary breakup. After drawing a line of separation, under the heading "Earnings" on the left side of the sheet, and on the right side, deductions. In earnings, you have to show his salary payable and in brackets the number of days you require to pay (gross salary) i.e., without deductions.

Include other benefits like leave encashment, payable bonus, any allowances, or reimbursements (ensure that for reimbursement, his bills are a must), and gratuity. Total these and mention as gross earnings. After that, on the right under the heading of deductions, calculate PF on the amount earned for the days worked (calculate PF on basic and DA or VDA if applicable). If ESI is applicable, include it, and also account for any advances (loans), then total all deductions and mention it as gross deductions.

Subsequently, show the net payable in terms of Rs. and in words as well.

Following this, write as:

HR Manager Accounts Manager CEO Director

They should sign after verifying.

Next, you have to write:

"I, [name of Employee], hereby state that I have received a cheque bearing No. ... for Rs. ... (Rupees ... only) against the full and final settlement. I also state that there are no other dues pending from the Management of [name of your organization].

Signature of Employee

Regarding your other query on the calculation of gratuity date of joining or appointment, you have to see from the date employee deductions started like PF, ESI, etc. The formula for leave encashment is basic + DA divided by 26 multiplied by the number of leaves in balance. For gratuity, it is basic + DA multiplied by and divided by 26 multiplied by the number of years worked. For gratuity, the minimum requirement is that the employee should have worked for 5 years and at least 240 days in every year. In case an employee has worked for more than 5 years, then you have to consider the 6-month criterion. For example, if a person's date of appointment is 1st Jan 2001 and leaves on 2nd July 2006, you have to pay the gratuity for 6 years.

I hope this clarifies all your doubts. If you have any further questions, feel free to get in touch via my email: mprabhakarrao@rediffmail.com.

Best wishes,

M. Prabhakar Rao
Head HR

Dear all,

I have one query regarding Leave encashment in full and final settlement. Suppose the employee who has resigned had 40 balance leave. When calculating F&F settlement:
1. What will be the formula for calculating the leave amount? Is it basic/30 x 40, basic/26 x 40, or should gross be taken in place of basic?
2. Do we need to deduct PF from the leave encashment amount as well?
3. What is the procedure and formula for PF calculation and deduction? For example, if the basic is 8000/-, allowances are 3000/-, and balance leave is 40, what will be the leave amount and PF amount?

Looking for help from members.

Thank you,
Nishant

Hi Nishant,

The calculation for leave encashment is Basic + DA (if DA or VDA is applicable) divided by 26 and multiplied by the number of leaves. In your case, it's 8000/26 * 40 days = Rs. 12,308.00.

Always, basic is taken for leave encashment in the calculation of gratuity.

The PF calculation will be as normal: 12% of basic from the employee, i.e., Rs. 960/-, and 12% contribution from the employer on Rs. 6500/-, which will be Rs. 780/-. Rs. 541 goes to the pension account (8.33%), and the remaining goes to the employee's account, i.e., 3.67%, which is Rs. 239/-. Regarding PF deduction on leave encashment, it is nil.

The calculation of gratuity is as follows: basic * 15/26 * number of years of contribution. For gratuity, there should be at least 5 years of continuous service.

I hope your doubts are cleared. In case of any other issues, get in touch.

Regards and be 😊,

Prabhakar Rao. M
Head - HR

Dear all,

I would like to request assistance from all the seniors. Can anyone help me with understanding which compensations will be considered as taxable income? As an HR manager, for example, the FOOD card, will it be categorized under special allowance? Similarly, any other employee benefits, please email me as this is very urgent. I need to create a new salary structure for our company. The company is a multinational corporation (MNC), and I need to ensure a well-structured compensation payroll.

Thanks & Regards,
Yogeesh S.T

Request you to please advise. One of our employees had resigned 8 years ago. He had worked for 1 year, during this period we had deducted some amount towards Medical Allowance, LTA, and others from his salary. Now he is asking us to refund the same amount. Please let me know if, as per labor law, we should reimburse the same.

Thanks,

Name
Designation
Department
Director's Name
Company
Joining Date
Releving Date

TGS - Current Month
No of Days (Salary days + Old PL)
BASIC
GROSS
PF
ESIC
PT
Net Salary

TGS - Previous Month
No of Days (Salary days + leaves)
BASIC
GROSS
PF
ESIC
PT
Net Salary

Commitment
Incentive for Current Month
Incentive for Previous Month
Shift Allowance Current Month
Shift Allowance Previous Month
Six-monthly incentive
Bonus
Special Inc./Performance Bonus
Arrears
Leave Salary
Referral Amount
1 MONTH NOTICE PAID TO EMPLOYEE
Total Payable
Recoverable
Total

Dear all,

I worked in the organization for 24 months. 540 Rs was deducted from my salary. What will be the contribution amount from the company's side?

What is the final settlement amount for PF?

I'm new to this site and I have a query. I'm working in a construction company as a temporary employee with a salary of Rs. 13,000/- and no other benefits. I have completed one year of service. Now, I want to know how much amount I will receive as a full and final settlement and how to calculate it.

Thanks in advance and I am awaiting your response.

Regards,
MSM

One of my employees has resigned from the company within 20 days of joining because he failed to work as per the company's targets. The company offered him a salary of 20,000 per month, including PF, and the appointment letter mentioned a term of 12 months of compulsory work with the company. He is being terminated, but to safeguard his future career, the company has accepted his resignation.

Full and Final Settlement Inquiry

I need to know what the Full and Final settlement will be for the employee. Can anyone help me out?

Regards,
Sachin

I have a query regarding TDS deduction on Full and Final Settlement. If a person has superannuated and his salary includes TDS deduction, then is it necessary to deduct TDS on Full and Final Settlement, which includes Gratuity, Leaves, Bonus, and Salary of the earning month. Kindly advise regarding this matter.

Hi,

I have a few doubts regarding F&F settlement. As per my company's appointment letter, notice pay equal to one month's basic salary is to be paid to the employee not serving the notice period. Can you guide me on the meaning of basic salary under labor laws if any? Does basic salary include DA and HRA also, or only the basic component?