Glossary
What is full and final settlement?
What goes into a full and final settlement when an employee leaves, in what order, and how to pay it from the last payroll run.
Updated
In short
Full and final settlement is the last payment to a leaving employee: salary to the last working day, encashment and gratuity, less recoveries. SimpleERP pro-rates the final payslip; you add the other lines yourself.
Full and final settlement, or F&F, is the last payment an employer makes when an employee leaves. It covers salary up to the last working day, encashment of unused earned leave, gratuity where due, any bonus or reimbursement owed, and deducts PF, professional tax, TDS, notice pay shortfall and unrecovered advances. The Code on Wages 2019, as notified, expects final wages within two working days of leaving.
Full and final settlement: a worked example
Selvam P, fitter at Lakshmi Steel Furnitures, leaves on 15 October 2026 after 7 years. He worked 13 of October's 27 working days. His Basic is ₹16,000, and ₹6,000 of an advance is still due.
| Line | Working | Amount |
|---|---|---|
| Salary for 13 of 27 days | Basic, HRA and special allowance pro-rated | ₹12,037.03 |
| Leave encashment, 10 days | ₹16,000 ÷ 26 × 10 | ₹6,153.85 |
| Gratuity, 7 years | ₹16,000 × 15 ÷ 26 × 7 | ₹64,615.38 |
| Total earnings | ₹82,806.26 | |
| Provident fund | 12% of pro-rated Basic ₹7,703.70 | −₹924.44 |
| Advance recovery | Balance of the advance | −₹6,000 |
| Net settlement | ₹75,881.82 |
FAQ
Questions, answered
What is included in full and final settlement?
Salary to the last working day, leave encashment, gratuity after five years or one year for fixed-term staff, bonus or incentives owed, and reimbursements. Against that: PF, ESI, professional tax and TDS on the final pay, any notice pay shortfall, and unrecovered advances or loans.
How long does an employer have to pay F&F?
Under the Code on Wages 2019, as notified, wages of an employee who leaves are to be paid within two working days. Gratuity has its own timeline under the Code on Social Security 2020. Many businesses still run F&F with the next payroll; check the current rules.
How does SimpleERP handle an employee who leaves mid-month?
When you set a termination date, that month's run includes the employee once, pro-rated: days after the termination date count as loss of pay. Later runs leave them out. Their attendance and payslip history stay on record.
Does SimpleERP compute gratuity and leave encashment for F&F?
SimpleERP does not compute gratuity or leave encashment for F&F. Work them out, then open the final payslip in the run review and add each with Add line → Other earning. To recover an advance in full, raise its monthly recovery to the balance before generating the run.
Related
Keep reading
Gratuity
A lump sum for long service: 15 days' wages per completed year, after five years, or one year for fixed-term staff.
Read moreLeave encashment
Cash paid for unused earned leave, at year end or on leaving, worked out from a day's wages.
Read moreEmployee advance
Money paid ahead of salary, held as an asset and recovered from later payslips in instalments.
Read more
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