How to Deal with Employee Full and Final Settlement?

Full and final settlement, or FnF settlement, is the procedure that must be followed when an employee resigns or is let go from their position. This FnF agreement is often handled by the company’s HR department. The process is straightforward and just since it adheres to the terms of the employee’s appointment agreement.

What is Full and Final Settlement (FnF)?

It is customary to pay an employee for the full month of labour leading up to his termination. In the context of a resignation, “Full and Final Settlement” refers to any payments or recoveries made before the employee officially leaves their position.

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Payroll might be settled in the previous month or in the months that follow. You may choose to conduct the final settlement after the employee has resigned, or you can quit them first and then do the settlement.

What is Included in FnF?

The final agreement includes all necessary approvals from several divisions including Information Technology, Finance, Human Resources, and Administration. It is also important to know what factors should be considered when calculating the final compensation for the employee. Let’s break down each of the events into its constituent parts:

IT Clearance

Employees are expected to return any company property supplied to them on their final day of work, including laptops, monitors, keyboards, mice, and other equipment. Depending on the circumstances, employee FnF might be held responsible for any damages. Accounts are updated to reflect employees’ resignation or termination (if applicable), and email addresses are deleted from the system.

Financial Clearance

Any credit card expenses made on the company’s behalf are also included here. A number of factors are used to determine the total compensation for the worker, including:

  • Outstanding/Unpaid Salary.
  • Unavailed Leaves and Bonus.
  • Employee Provident Fund/Pension
  • Gratuity.
  • Deductions from Full and Final settlement.

HR Clearance

Distinct companies have different HR policies in place for things like joining incentives, training, and termination pay. Based on the employee’s tenure or business policy, the Full and Final settlement letter may include a request for the employee to repay the joining bonus or the employer’s most recent bonus. Furthermore, the employee may or may not be obligated to pay the FnF settlement payment if the notice period is insufficient.

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Admin Approval

As part of this process, you’ll need to get a corporate ID card or other appropriate credentials to gain access to the building where your firm is located.

What is Payroll Full and Final Settlement?

Reaching a full and final settlement may be a challenging and confusing endeavour. For a leader, money is everything. To make things simpler for your payroll department, you should have a set of clearly established separation protocols in place at your organisation. To help firms simplify their FnF settlement, we have collected a list of common rules and procedures.

Clearly Defined Separation Policy

Clearly articulating your rules around employee and client separation is essential. Establishing guidelines for items like the length of notice required, the amount of a gratuity, and the ability to cash in accrued but unused vacation time is important. Your payroll department might benefit from these guidelines to ensure no confusion arises. The number of disputes in the FnF agreement will decrease as a consequence.

FnF Partial Payment

It is the policy of certain businesses to continue paying out salaries to departing workers for the month after their leave (i.e their last working month in the organization). This term may also refer to the process of partial FnF settlement. Since this approach reduces the complexity of computation, it may be applied. TDS and back pay for the prior month’s work will be the only ones the payroll department needs to compute.

FnF in bulk or one-by-one

When a company is expanding rapidly or laying off a big number of workers all at once, it may be a tedious task to calculate payroll for each individual worker. When the number of FnF payments received by a company increases, the company may choose to settle all of the payments at once. Companies may save time and effort by settling employee debts in bulk rather than one at a time.

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Full and Final settlement

How is Full and final Settlement Calculated?

Full and final settlements are often calculated by HR professionals and upper-level managers. When it comes to FnF payouts, smaller companies may handle each employee’s individually, whereas bigger companies will often execute FnF payments in batches.

The total of the aforementioned amounts is the “full and final settlement.” The process includes determining the employee’s net compensation after taxes have been withheld, as well as settling any outstanding paid leave, arrears, or Provident Fund balances. Companies almost seldom resort to hand-calculating such figures. They use reliable and strong tools to arrive at an accurate refund total. At its conclusion, the process is summed up in a FnF settlement letter.

How many days it will take for full and final settlement?

According to the rules, the last payment has to be made on the employee’s last day of work. It isn’t often the case in reality, though, since clearances and paperwork take time. From 35-45 days following the employee’s final day of employment is typical for the settlement term. Compensatory time should be cleared by the firm within 30 days. Similarly, any further bonuses must be recorded in the same fiscal year.

What is a Full and Final Settlement Letter?

The final settlement payment instructions are included in this letter. Letter acknowledging receipt and acceptance of resignation by company management. Therefore, the employee’s employment with the company ends as of the relief date specified in the letter.

The whole process of Full and Final Settlement is quite methodical and well-organized. A well-executed severance plan helps a business to let go of employees in a methodical manner. Human resources knowledge and precision math are both required for the FnF settlement. Businesses in the modern day often use HR management systems that have been developed in-house. If they use Payroll, they can speed up their FnF process and reduce the likelihood of arithmetic mistakes. Human resources personnel may also be able to use this programme to get access to the template for the final settlement letter that will be sent to workers.

The rules, norms, and structures of an organisation may also help simplify FnF. Also, any disputes that come up throughout the FnF process must be settled in writing. Companies who adhere to all of FnF’s rules and principles are better able to minimise wasteful spending and maximise their potential for development.

Companies with effective FnF policies sometimes establish internal timelines to reach the FnF settlement. Prior to an employee’s last day of work, it is preferable to have a complete and final settlement process in which the HR department facilitates transactions between all parties and settles any remaining concerns.


Do you need access to complete and final settlement documents from the employee to the HR format? Do you want for your FnF settlement to go off without a hitch? Visit Ultimate Business Systems, a frontrunner in HRMS Software India, to get the industry’s most comprehensive HR toolbox, complete with HR letters, calculators, policies, and more! Contact us now to schedule a live demonstration of our Human Resource Management System (HRMS) and Payroll Management System (Payroll Management System).

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