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What is Full and Final Settlement?

What is Full and Final Settlement?

Full and Final Settlement or FnF or F&F process refers to the final payroll-related formalities associated with the resignation of an employee. Since the employee is bidding farewell to the company, HR needs to ensure that salary is paid accurately until the employee’s last working day.

The full final settlement process commences once the employee’s resignation is approved by HR and ends once they are paid their dues. That is why it is also referred to as ‘exit formalities’ in some cases. Along with the salary for the employee’s last working month, they are also paid their bonuses, arrears after the necessary taxes are deducted.

Constituents of FnF Settlement

The major components of the payroll generated with the full and final settlement are:

Leave Encashment: Salary for non-availed leaves is encashed and added to the full and final settlement. Leave encashment entitles the employee to be paid for the leaves they did not take during their employment with the company. It assures that the company can keep its promises regarding leaves even when the employee is leaving the organization.

Unpaid Salary: Unpaid salary is the salary from the start of the notice period to the employee’s last working day. THe unpaid salary might also include the arrears and other allowances to which the employee is entitled. The arrears are calculated as the number of days for which compensation is made, by multiplying it to the gross salary and then dividing it by the number of paid days in a month, which is usually 26.

 

Bonuses:
Bonuses refer to the rewards provided by the company for any kind of reason pre-defined by the company such as good performance. The employee is eligible to receive any pending bonus even in the case of resignation. Indian Factories Act, 1948 states that all unpaid dues such as unpaid salaries and bonuses should be paid by the 7th and 10th of the following month.

Gratuity:
Gratuity is the amount paid by the company and the end of employment to recognize an employee’s loyalty towards the organization. As per the Payment of Gratuity Act, 1972, the gratuity should be paid within 30 days from the last working day, in cases where the employee has been working for a minimum of 4 years or 240 days with the company. If the employer fails to do so, it starts accumulating interest.

Pension:
Pension refers to the fixed income provided to employees who have completed a minimum of 10 years of service at an organization. The employee can avail pension benefits by producing a ‘Scheme Certificate’ after their retirement or after 58 years of age, whichever is later. The employees are provided with the pension as a part of their Employment Provident Fund.

Deductions:
The normal deductions applicable to the salary are also applicable for the full and final settlement. Deductions such as professional tax, income tax, provident fund as well as any deduction in cases where the entire notice period was not served, are deducted before arriving at the final full and final payment amount.

Constituents of FnF Settlement
Full and Final Calculation

Full and Final Calculation

The Full and Final Calculation is performed by taking into account all of the various elements mentioned above. After adding the leaves encashed, pension (if applicable), gratuity (if applicable), pending bonuses and arrears, unpaid salary, and deducting the necessary deductions, the full and final amount is calculated and it is provided to the employee, in the same manner, the salary was provided to the employee.

The HR department is the one that undertakes the process of the full and final calculation. it might be calculated for each resigning employee individually or in batches, for a larger organization. They are also tasked with deducting the necessary taxes to ensure that all statutory compliances are maintained.

Nowadays, these calculations are performed with the help of software, with modern software even automating the entire process with minimal to no human intervention. Hence, it is advisable to have a robust HRMS system like Pocket HRMS to complete this process error-free, quick and efficient.

 

If we are to summarize the process of full and final calculation, it will follow the below-mentioned order:

Step 1 – The employee submits their resignation to the HR team.

Step 2 – The company’s management accepts the resignation after reviewing the employee’s resignation letter.

Step 3 – The employee ensures that no dues are pending towards any department by collecting the certificate for the same from the relevant department.

Step 4 – The HR arrives at the exact full and final amount by performing the calculations.

Automate F&F Calculations with Pocket HRMS

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Automate the Full and Final Settlement

Pocket HRMS makes the process of full and final settlement simple and easy with automated calculations. With the help of our software, crucial payroll details such as bonus, unpaid salary, non-availed leaves, gratuity, medical, insurance, etc. will be at your disposal in seconds

With the full and final settlement, your employee gets paid for the last working month as well as any arrears. The full and final settlement process can be applied according to the company policy and hence, it is up to the company whether to provide the amount when the employee leaves the company.
Automate the Full and Final Settlement

Consolidated FnF Dashboard

Pocket HRMS also comes with a comprehensive FnF Dashboard which helps the HR understand the various figures and real-time numbers related to the final settlement of the employees. The consolidated dashboard also helps them understand where you need to put effort to complete the FnF process. It will also help understand if an employee has completed the necessary formalities and are waiting for the FnF amount to be credited.

Automate Statutory Compliances

As mentioned earlier, the statutory deductions are a part of the full and final settlement calculation as it applies to the salary. Similarly, the full and final amount should also honour the statutory compliances. Having a robust up to date system such as Pocket HRMS ensures that you always stay atop these compliances as they are automatically calculated and any changes in the laws are updated by the implementation team as and when required.
Automate Statutory Compliances
Error-free Calculations

Error-free Calculations

Since Pocket HRMS automates the process of calculation of the full and final amount, the figures always tally up. There is no possibility of human errors since the entire calculation is automated and is based on the employee’s current salary and its components. Considering the fact that the employee would be using the other modules of Pocket HRMS to submit their resignation, the entire process can be automated with HR simply supervising the final email and providing their approval to the amount being calculated.

Recover Assets Easily

The employee uses various assets provided by the company for their daily work such as laptop, vehicle, apartment, etc. However, these assets need to be returned by the employee when they leave the organization. With the full final settlement module of Pocket HRMS, these assets can be tracked and marked as recovered as and when the employee submits the same with the company. These assets can be recovered easily as HR will be able to have an overview of the assets and share the same with the employee if required.
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Finalize Crucial Recoverables

Finalize Crucial Recoverables

Pocket HRMS also proves helpful for the employees who are exiting the company by making the process smooth and efficient. For example, it provides an easy option to determine the various recoverable that can be claimed at the time of exit.

Having this option greatly reduces the various to and fro email between the HR and the employee, thus ensuring a smooth exit for the employee as well as making the process efficient for the HR department too.

Effortless Exit Interviews

Exit interviews are a part of good resignation practices. However, it might be awkward in some scenarios and hence, having online exit interviews via software could make this a much easier process. The employees would also tend to be more honest in cases where they know that they would not be judged immediately based on their statements in case of online exit interviews.
Generate Custom Reports

Generate Custom Reports

The HR would be able to generate custom HR MIS reports based on the full and final process using Pocket HRMS. Having this option greatly enhances their ability to understand the resignation data as well as make informed decisions based on the same.

The ability to generate custom reports also helps HR understand the reasons behind employee resignations and take necessary measures to improve employee retention and engagement for the future. It also provides an easy option for HR to visualize the data for the management to persuade them to greenlight any changes based on the data.

Intelligently calculates F&F payables when an employee leaves a company. Check out all the core features of Pocket HRMS.

Benefits of Full and Final Settlement

pocket hrms Save Time _ Cost

Timely FnF Disbursal

Cloud-based software remains updated with the latest information thus ensuring efficient operations and timely FnF disbursal

pocket hrms Make HR Efficient

Simple Asset Recovery

Since the employee details are linked with the assets provided by the company, they can be easily tracked and recovered

pocket hrms Error-free Payroll

Dashboard Overview

An intuitive dashboard provides a bird's eye view of the employees under the exit process so that you can remain up to date

pocket hrms Accurate Attendance

Avoid Errors

Automated calculations and internal cross verifications ensure that there are no errors in the FnF amount being sent to the employee

pocket hrms Engaging Experience

Smooth Exit Surveys

Simple exit surveys help the employee provide valuable feedback and honest opinion on their company for future improvement

pocket hrms High Portability

Easy FnF Tracking

The HR department can easily track the process with automated status updates for each employee and avoid any delays

Frequently asked questions

There is no fixed time period as to when the final amount is credited into the employee’s account. However, most companies provide it within 10-15 days from the employee’s final salary credit.

The employee can also request their employer to expedite the process under valid circumstances and the employer needs to abide by their request in such a scenario.
Gratuity will be included as a part of the settlement in cases where the employee is eligible for the same.

The rules governing the inclusion of gratuity under the full and final settlement is dictated by the Payment of Gratuity Act, 1972.
Generally, it is paid via the same medium the employer provides the salary to the employee.

However, some companies might prefer giving cheques even if the employee has been receiving their salary via wire transfers.
In such cases, the employee can raise a complaint with the labour department.

In cases where the company is found to unnaturally delay the payment, they might face a lawsuit by the labour department on behalf of the employee.

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