What is Full and Final Settlement (FnF)?

Full and Final Settlement (FnF) is the process an employer completes when an employee resigns, retires or is terminated, to settle every financial item between the two parties: unpaid salary, leave encashment, gratuity (if eligible), bonus, reimbursements and any notice-period adjustment, net of recoveries such as unreturned advances, loans or company assets.

• Pending salary for days worked in the last month, including any pro-rata variable pay.
• Leave encashment for unused earned leave, per company policy.
• Gratuity, if the employee meets the eligibility criteria under the Payment of Gratuity Act, 1972.
• Notice-period pay or recovery, depending on who initiated the exit and how much notice was served.
• Recoveries for loans, advances, or unreturned company property; reconciliation of reimbursements and statutory deductions (PF, ESI, professional tax, TDS) up to the exit date.

The Code on Wages, 2019 provides that wages due on account of removal, dismissal, retrenchment, resignation or termination be paid within two working days of the event — this reflects the intended direction of wage-payment timelines, though employers should confirm the current effective status of the Code and of their state's Shops and Establishments Act rules before relying on a specific number of days.

• Delaying FnF processing well beyond a reasonable period, creating compliance and goodwill issues.
• Missing gratuity or leave-encashment eligibility checks during the settlement.
• Not issuing a relieving letter, experience letter and Form 16 alongside the final payment.