Full & final settlement, computed
Unpaid salary, leave encashment, gratuity, notice recovery and statutory deductions, netted into one clear statement with every line's working shown, ready when the exit is.
What is a full and final settlement?
A full and final settlement (FnF) is the closing computation of everything owed between an employer and a departing employee: salary to the last working day, leave encashed per policy, gratuity where five years of service are complete, pending reimbursements and dues on one side; notice-pay shortfall, advances and recoveries on the other; statutory deductions applied to what is taxable and contributory; and one net figure at the bottom. PeopleDeck computes the whole statement from records it already holds (attendance, balances, tenure, structures, advances), and shows the working behind every line.
Why it deserves its own machinery: FnF is the payroll computation most likely to be disputed and least likely to be practised. A monthly run repeats; exits arrive irregularly, each with its own mix of encashment rules, gratuity eligibility, recovery items and tax edges. Done by hand, each settlement is a fresh derivation by whoever is least busy that week, which is how two employees with identical exits get different numbers, and how a departing employee's last memory of the company becomes an argument. Computing it from records turns the settlement from a negotiation into a statement.
Every line of the statement
Earnings side
- • Unpaid salary: pro-rated to the last working day from attendance, including pending arrears
- • Leave encashment: the exit-date balance × the policy's wage basis, taxable and exempt portions itemised
- • Gratuity: last drawn × 15/26 × completed years, at five years' eligibility, computed from recorded tenure
- • Reimbursements & dues: approved claims not yet paid, incentive instalments due under scheme terms
Recoveries and deductions
- • Notice-pay shortfall: days short of contractual notice × the wage basis your terms define
- • Advances & loans: outstanding balances recovered, with their issue trail cited
- • Asset recovery: per policy, entered as documented items, never silent deductions
- • Statutory: PF on final wages, ESI where applicable, PT per state, TDS on taxable components with the year's projection trued up
The net of the two sides is the settlement figure. One number; but the statement's value is the lines above it: each carries its basis, so the departing employee, HR and the auditor are reading the same arithmetic rather than trusting a total.
From resignation to statement
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1
The exit is dated, and the clock is visible
Resignation date, contractual notice and agreed last working day enter the record; the notice-shortfall computation is visible from day one, so both sides know the number while it can still change behaviour — serve the notice or accept the recovery.
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2
Inputs close with the last working day
Final attendance, pending claims, advance balances and the leave balance freeze as of the exit date. The offboarding checklist (handovers, assets, access) runs in parallel; its workflow lives in onboarding & offboarding.
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3
The statement computes, HR reviews
Every line derives from records, no fresh spreadsheet, no re-derivation. HR reviews the computed statement, adds any policy-level decisions (a waived recovery, a discretionary payment) as documented entries, and approves.
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4
Paid, shared and archived
The settlement pays as its own run with its own trail; the employee receives the itemised statement through self-service; contribution and TDS records update for the final period; and the statutory files for the month generate as usual — upload-ready, filed by you.
A worked example
An employee on ₹40,000 gross (₹20,000 basic) resigns with a 60-day notice period, serves 45 days, and exits after 6 years and 8 months of service with 18 days of encashable leave and a ₹5,000 advance outstanding. The statement computes: unpaid salary for 12 worked days of the final month ₹16,000; leave encashment per policy basis ₹13,846; gratuity at 15/26 × ₹20,000 × 7 years (eight months rounds up) ₹80,769; less notice-pay shortfall for 15 days ₹20,000, less the ₹5,000 advance. PF applies on the final month's wages; TDS trues up against the year's actuals with gratuity and the exempt portion of encashment treated per current rules; and the net figure lands at the bottom of a statement where every line shows its formula. The employee questions the notice recovery, and the answer is the contract's clause and the calendar, printed on the line itself.
Figures are illustrative, for mechanism only; your structures, policy bases and tax positions will differ.
The settlements that test the system
The absconder
No resignation, no last-day handshake. The exit dates per policy after notified absence, dues compute with recoveries netted, and the statement waits on record for whenever the person resurfaces. Documented at every step, because these are the exits most likely to end up contested.
The four-year-eleven-month question
Gratuity eligibility at five years is the line employees ask about most. The system computes from recorded tenure and applies your policy position on the edge cases, and whatever position you take, it takes consistently, which is the defensible part.
The exit during an incentive cycle
Scheme instalments due to exit date compute under the scheme's own terms: earned portions paid, unearned lapsed, each cited to the scheme. The commission argument that outlives the employment ends at the citation.
The retirement
Long tenure, maximum gratuity exposure, tax treatment that matters, all computed from decades of record with the exemption arithmetic itemised, so the career's last payslip is also its cleanest.
What the system deliberately does not do: it files nothing, decides nothing, and hides nothing. PF withdrawal or transfer after exit is the employee's own portal action, made painless because their contribution history is complete. Disputed positions are yours and your consultant's to take; the system's contribution is that both sides argue from the same computed facts. And no turnaround promise is printed here: how fast a settlement pays is your policy; the system's job is making sure computation is never the reason it waits.
Running a school or college? Staff exits settle inside your ERP: SchoolDeck staff payroll or CampusAlly payroll. PeopleDeck is the standalone HRMS for any business, with per-employee pricing.
Primary sources for the figures on this page: Ministry of Labour & Employment · EPFO · Income Tax Department. Verification date is printed beside each figure; maintained by Databus Technology Solutions.
Frequently asked questions
What does a full and final settlement include?
The earnings side: unpaid salary to the last working day, pending reimbursements, leave encashment per policy, gratuity where five years of continuous service are complete, and any pending bonus or incentive due under scheme terms. The recovery side: notice-pay shortfall, outstanding advances or loans, and asset recoveries per policy. Statutory deductions — PF on final wages, ESI where applicable, professional tax and TDS on taxable components — apply to the computed amounts, and everything nets into one statement.
How is gratuity calculated on exit?
The statutory formula is last drawn wages × 15/26 × completed years of service, with eligibility at five years of continuous service (service beyond six months in the final year rounds up to a full year). PeopleDeck computes it from recorded tenure and the final wage structure, shows the working on the statement, and applies the tax treatment current at computation.
How does notice-pay recovery work?
If the employee serves less notice than the contract requires, the shortfall is recoverable per your policy, typically computed on the wage basis your terms define, for exactly the days short. PeopleDeck computes it from the resignation date, the agreed last working day and the contractual notice period, and shows the arithmetic — the single most disputed line in most settlements, made checkable.
Is leave encashment on exit taxable?
Leave encashment on exit has an exemption framework with limits that differ for government and other employees, and the computation depends on the employee's history and current thresholds. PeopleDeck computes the encashment per your policy, applies TDS treatment per the rules current at computation, and itemises the taxable and exempt portions so the employee's Form 16 data stays consistent.
When should the settlement be paid?
The Code on Wages framework points to prompt settlement of dues on exit, commonly read as within two days for wages where rules are in force, with state rules varying in practice. What the system contributes is removing the computation as the excuse: the statement is ready for review as soon as the inputs close, so the timeline becomes a policy decision rather than an arithmetic backlog.
Does PeopleDeck file anything as part of FnF?
No. It computes the settlement and produces the statement, updates the employee's contribution and TDS records for the final period, and generates the period's statutory files as usual — upload-ready, filed by you or your consultant. PF withdrawal or transfer is the employee's own portal action; the system's records make it painless.
Can a settlement be revised after it is issued?
Approved settlements lock like any approved run; a genuine correction (a claim that surfaced late, a recovery waived) processes as a documented supplementary adjustment with its own trail. The original statement stays intact, which is exactly what you want if the exit ever becomes a dispute.
Every exit, cleanly closed.
FnF computed from records, itemised in one statement. Per employee, per month.
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