What is Full and Final Settlement ?
Full and Final Settlement (F&F Settlement) is the process through which an employer pays an employee all dues owed after their resignation, termination, or retirement. It marks the formal closure of the employer-employee relationship and includes settling salaries, benefits, and other pending reimbursements.
Key Components of Full and Final Settlement:
Unpaid Salary:
Includes salary for the days worked in the last month.
Encashment of Leaves:
Payment for unused paid or earned leave, as per company policy.
Gratuity:
If the employee has completed 5 or more years of continuous service, they are eligible for gratuity.
Bonus or Incentives:
Any pending performance-based bonuses or incentives.
Deductions:
Includes income tax, Provident Fund contributions, loans or advances taken, and any penalties or recoverable amounts.
Reimbursements:
Payment for any pending expenses, such as travel or medical reimbursements.
Notice Pay:
If the employee did not serve the full notice period, the equivalent amount may be deducted. Alternatively, if the company waived the notice period, no deduction is made.
Provident Fund (PF) and Pension:
Transfer or withdrawal of the employee’s PF contributions.
Process of Full and Final Settlement:
Employee Resignation/Exit:
The process begins after the employee's last working day.
Verification:
The HR department verifies any dues, including salary, leaves, advances, or other reimbursements.
Approval:
Approval from relevant departments like HR, finance, and the reporting manager.
Calculation of Dues:
Final salary and other payable amounts are calculated.
Payment:
Settlement is processed, and payment is typically made via bank transfer or cheque.
Issuance of Documents:
The employee receives important documents like a relieving letter, experience letter, Form 16 (for tax filing), and settlement statement.
Timeline for Settlement:
The timeline for F&F settlement may vary by organization and country. In India, it is generally completed within
30 to 45 days of the employee’s last working day.
Importance of Full and Final Settlement:
Legal Compliance:
Ensures adherence to labor laws and company policies.
Employer-Employee Relationship:
Maintains goodwill and professionalism during the exit process.
Transparency:
Offers clarity to both parties about the financial aspects of the termination.
Challenges in F&F Settlement:
Delays:
Settlement can be delayed due to pending approvals or discrepancies in dues.
Disputes:
Employees may contest deductions or calculations.
Tax Implications:
Proper tax compliance is essential to avoid legal issues.
Full and Final Settlement is a crucial aspect of the employee exit process, ensuring all dues are paid and the professional relationship is concluded on good terms.