Understanding the Last Working Day (LWD)
There is no definition given to the last working day under any Act, but it is the date on which an employee is formally relieved, and until which the salary is paid. If an employee is on a notice period and you, the employer, want him to be relieved earlier, and accordingly, he is asked to leave before completing the notice period but the remaining days' salary is paid to him, then the last working day shall be either the day on which he was relieved or the date till which he was paid remuneration. In such cases, the date of exit is marked depending upon mutual agreement; it can be the last day of physical presence or notional presence.
Compensation and PF Implications
In the former case, the amount paid by way of notice pay for the period days till the notice period is over is compensation for termination, and in the latter case, it is salary. The former will not attract PF, and you should mark his exit on the last physical working day itself. In the latter case, the payment is like salary, and you should contribute to his PF until the date.