When an Indian employee exits — whether resignation or termination — Full and Final settlement consolidates everything owed and owed back. A well-run F&F is paid within 7-15 days of last working day, fully documented, with clean tax treatment. Mishandled F&F creates labour-tribunal disputes that drag for years.
Components of F&F
| Component | Computation |
|---|---|
| Pending salary | Pro-rated salary for days worked in exit month not yet paid |
| Notice recovery (if applicable) | Notice days short × daily salary |
| Earned leave encashment | EL balance × daily Basic (subject to policy) |
| Gratuity (if 5+ yrs) | (Last Basic + DA) × 15/26 × completed years |
| Pending bonus / variable | If approved but unpaid |
| Reimbursements pending | If approved but unpaid |
| TDS on final taxable amount | At slab rate |
| Advances / loans outstanding | Recovered from gross |
| Notice buy-out (if employee paying) | Days short × daily salary |
| Outstanding equipment | Deducted at depreciated value if not returned |
| Net payable | Sum of credits - sum of debits |
Timeline
- Last working day arrives.
- Within 3-5 days — F&F computation prepared.
- Within 5-7 days — employee reviews and signs off (or queries).
- Within 10-15 days — payment made to employee bank account.
- Form 16 issued within current FY for the year-of-exit (final issue at year-end statutory 15 June).
F&F engine bundled in payroll
FastLegal's F&F engine pre-computes every component using live employee data — gratuity, leave encashment, advances, notice. Admin reviews, edits if needed, finalises. Payment and documentation flows automatically.
Tax treatment by component
- Pending salary — fully taxable as salary.
- Notice pay received from employer — taxable as salary.
- Leave encashment — exempt up to ₹25L (recent increase) on retirement; partial exemption on resignation.
- Gratuity — exempt up to ₹20L under Section 10(10).
- Notice recovery from employee — reduces taxable income.
- TDS applied at slab rate on the final taxable amount.
Documents to issue to departing employee
- F&F computation worksheet.
- Relieving letter — confirms employment ended, no dues / clearance status.
- Experience certificate / service certificate — tenure, role, contribution.
- Form 16 (or Form 130) for current FY (full one at next 15 June).
- PF withdrawal Form 19 / Form 10C (if employee wants to withdraw immediately).
- Gratuity payment voucher (if applicable).
- Group health insurance discontinuation notice.
Common F&F disputes
- Notice recovery — employee disputes the recovery, especially if leaving for new opportunity. Document agreement.
- Leave encashment — what's encashable per policy. Document policy in employee handbook.
- Gratuity — disputes on completed years (5y vs 4y 240d). Honor the 4y 240d case law in most situations.
- Outstanding advances — recovery documented per loan agreement.
- ESOP exercise window — clarify what happens to unexercised options.
Frequently asked questions
What's the legal deadline for F&F payment?+
Code on Wages 2019 specifies 2 working days for resignation, and within the next wage period for other exits. Most employers pay within 7-15 days as standard practice.
Can we withhold F&F to recover company property?+
Reasonably yes — F&F can include deduction for unreturned equipment at fair value. Excessive withholding is challengeable.
What if the employee disputes the F&F amount?+
Pay the undisputed portion immediately; mediate the disputed portion. Holding full F&F hostage creates labour-tribunal risk.
Do we issue Form 16 with F&F?+
Form 16 for the partial year of employment is issued at the next 15 June (regular statutory deadline). Some employers issue a 'salary statement' for the partial period at F&F time for the employee's immediate reference.
Stop reading circulars. Start running clean payroll.
Every FastLegal plan ships with a dedicated payroll consultant — a real human who runs your PF, ESI, PT, TDS and Form 16 issuance, configured to your salary structure, your state, and your hiring plan. You sign off. We do the rest.