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Whenever an employee is resigning, retiring, or being dismissed by management, Full and Final Settlement takes place for their departure. It is practiced by processing all dues payable to and receivable from an employee.
An organization can take up to 20-30 days to complete the full and final settlement process because of various functions that take part in it.
While processing the FnF, components like arrears and other details are taken into account along with clearances from different departments.
Functions like exit interviews, feedback chains, quality offboarding, etc., are brought to notice while calculating the full and final amount.
Returning the assets like – laptop, mouse, keyboard, phone or sim, vehicle, etc., that were lent to you by the company fall in this category. Damages to assets will/can be recovered from the FnF amount.
This usually includes reacquiring all access cards and physical IDs present with the employee with which they can gain access to places within the organization.
From arrears to deductions to bonuses, etc., everything is taken into account.
1. Outstanding/Unpaid salaries
The salary due till the date of employee’s resignation is calculated along with benefits provided, such as LTA (Leave Travel Allowance) or any other arrears.
2. Bonuses and leave balance
All the leaves in balance, bonuses, etc., must be calculated and added to the FnF amount.
3. PF & Pensions
PF (Provident Funds) are deducted from the monthly salaries and deposited by the employers. When being relieved, the PF amount can be migrated as well, or if the employee wishes, it can be credited to their account.
Gratuity is granted only when an employee has completed their 4.5 years with a company. If the gratuity amount isn’t paid within a month of the employee’s relieving, then their employer is liable to pay interest on it.
An employee’s income tax, provident fund, other taxes (as per policies), and balances due if the notice period was not served are noted. Earned leaves are encashed at this point, and gratuity is exempted from the due TDS.
When it comes to taxes, salaries up to 2.5LPA are exempted from paying tax, but above that income bracket are liable to pay around 5% tax, going up according to their package.
To conclude, the FnF process consists of two things – the dues due to the employee and the dues that are to be recovered from the employee.
The amount due to the employee consists of:-
Relieving month salary
Salary for the month when the employee is leaving, is not paid generally like every month instead it is added to the FnF amount.
Notice period salary
Typically, the time period when an employee serves the notice period is the one where salary is not credited to them like normal. Instead that period’s salary is to be added in the FnF amount as well.
Companies that have paid time off in their policies for their employees. Employees that have earned leaves in their leave balance stand to get them credited to their FnF amount.
Calculation of amounts payable:-
A fixed amount defined by the company i.e. per day basic:-
= (Number of unutilised earned leaves x Basic salary) ÷ Average paydays in a month
NOTE: The average paydays in a month are the number of days on which a company runs payroll calculations.
Example: If an employee’s Basic salary is Rs.10,000 and has a balance of 20 unutilised earned leaves, then earned leaves amount payable will be calculated as (20 x 10,000)/26 = Rs.7,692, considering there are 26 working days in a month, excluding the holidays.
LTA (Leave Travel Allowance)
LTA is the amount provided by the company to the employee for any official trips or vacations. Any unclaimed amounts of such benefits can be encashed during FnF if the company policies allows.
For detailed information, refer to our Gratuity Calculator
Any unpaid bonus or bonus declared by the organization but not paid yet is included in the FnF amount.