Full and Final Settlement
The closing calculation when someone leaves — everything owed to them, less everything they owe.
Full and final settlement is the reconciliation performed when employment ends. On the payable side it typically includes salary for days worked in the final month, encashment of any leave balance the policy allows to be encashed, gratuity where the employee is eligible, any pending reimbursements, and bonus or incentive amounts already earned.
On the recoverable side it can include notice period shortfall, advances and loans outstanding, unreturned assets, and any excess leave taken. Deductions from wages are constrained by law, so what an employer may actually recover is narrower than what it might wish to, and recovering an amount not permitted is itself a default.
Provident fund and ESI treatment continue to apply to the final month’s wages. Income tax deducted at source has to account for the whole year’s earnings including the settlement, which is why a final payslip often carries a tax figure that looks unlike previous months.
Statutory gratuity carries its own payment timeline under the Payment of Gratuity Act, separate from whatever the company’s own settlement schedule is. Treating gratuity as just another settlement line item, payable whenever the settlement clears, is a common and consequential mistake.
What varies
Notice period, leave encashment rules and asset recovery terms are contractual. The statutory elements — gratuity, PF, ESI, TDS — are not.
Also called: f&f, fnf settlement, final settlement.
This is a description of the law as it stands, not legal advice. Back to the glossary.
In the product
Payroll Software
Statutory-accurate payroll in hours, not days.
- Automated PF (EPFO), ESI (ESIC), PT and TDS across every state you operate in
- Per-state Professional Tax handling — including states that levy none
- Form 24Q, Form 16 and ECR files generated from the payroll run itself