Full and Final Settlement - What Is the Meaning of F&F and Its Importance | HRMantra HR Software

Full and Final Settlement - What Is the Meaning of F&F and Its Importance | HRMantra HR Software

5-6 minutes

Full and Final Settlement Meaning

The resignation, exit, or removal from employment of an employee creates debts in his name as well as entitlements to him. His Full and Final Settlement involves ascertaining what he shall be paid upon cessation of his services either by way of resignation, termination, or non-renewal of his contract.

Table of Contents

• Full and Final Settlement Meaning
• Rules of Full and Final Settlement
• Process of Full and Final Settlement
• Essential Components and Activities of the Full and Final Settlement
• When is the Full and Final Settlement Carried?
• FAQs

Rules of Full and Final Settlement

In India, the provisions of law govern the handling of full and final settlements. The role of keeping a vigil over the act is played by the Payment of Wages Act.

This will be about the time and the way to pay wages so that employees get their compensation. The Act requires the employer to disburse Full and Final Settlements within a week to ten days from the last working day. This again is a legal process so that employees get their rights and access to the benefits.

Methodology for Full and Final Settlement

Proactive and updated documentation is a key input to FnF settlements. The following is the list of documentation that both employer and employee should keep at hand:

• Resignation Letter: It is the formal letter about resigning from the employee.
• Offer Letter and Employment Agreement: These documents validate the job roles, terms of employment, and the compensation details.
• Records: Records of participation and leave enable the calculation of leave encashment.
• Payslips: Payslips provide details of compensation elements that support calculations.
• Form 16: Such documents are important for tax-related calculations.
• Repayment Documentation: Repayment claims and receipts are also essential for finalization of repayments.

Critical Components and Activities in F&F Settlement

It is important that the factors to be put into consideration when determining the amount owed to the employee are well understood.

• Financial Independence: This aspect touches on the repayments costs from the company cards. These are the factors to be considered when calculating the contribution owed to the employee.
• Unpaid/Overlooked Salary: According to the Payment of Wages Act, 1936, the wages should be paid off within or on the 7th or 10th of the month. But when an employee leaves, their salary till the date of resignation has to be calculated. Unpaid salary even includes benefits to the employees like LTA (leave travel allowance) or any other pending payments.
• Remaining Bonus: The Factories Act, 1948 proactively provides that all unavailed leaves and bonuses become due on the 7th or 10th of the month following resignation. Companies differ on the leaves provided to their personnel. Organizations may give their staff rewards for events or outstanding performance.
• Employee Provident Fund (EPF) or Pension: A certain amount, however, is deducted from the employee''s salary every month and the company also contributes a proper amount. The company keeps this contribution in the form of a provident fund and pension fund, which acts as a corpus for the employees.
• Deductions from Final Settlement: All applicable tax or other financial liabilities relating to the final settlement amount shall be deducted from the total amount.
• Leave Encashment: Leave encashment in Final Settlement means conversion of unutilized earned leaves into a payout when an employee decides to leave the organization.
• IT Clearance: It means returning the company assets which might include computer, monitor, keyboard, or mouse/any amenities given to the employee on their working day. In the case of damage, the same could be recovered from the employee''s settlement amount.
• HR Policies: Various HR policies with respect to sign-on rewards, learning and opportunity expansion. Also, the notice period may be different with each company. Depending upon the contract or company policy, the sign-on rewards or the last reward of a company can be asked during the Full and Final Settlement.
• Administrative Privilege: It is about providing the ID card to the employee or the other mandatory resources needed for entry/access into the COMPANY.

When Does the Full and Final Settlement Take Place?

An important point to note here is that an employee, whether he leaves the organization themselves or is terminated by their respective employer, is entitled to receive all their dues within a time frame.

It is a norm to complete the process within 30-45 days (about 1 and a half months) from the employee''s last working day. In case the employer does not meet Full and Final Settlement requirements upon your exit, it can be legally contested. Interest as a penalty on all dues is payable by the employer.

Important Points to Remember

• Keep records of all communication made in respect of the employee.
• The settlement value may be calculated according to the regulations.
• Make a Full and Final Settlement within the stipulated days.
• Debit taxes (TDS) on the income.
• Calculations and a Full and Final Settlement pay slip should be provided to the employee.
• If the employee fails to provide Full and Final Settlement, it may result in a penalty or punishment, including imprisonment or both.

Frequently Asked Questions (FAQs)

What should an employee do to inform the employer that Full and Final Settlement should be made?

An employee can issue a notice through his lawyer to his employer for the purpose of informing him about a Full and Final Settlement. A request regarding the settlement of pending dues may be made in such a notice. A timeframe may be specified for the settlement.

What if the employer does not complete the Full and Final Settlement?

Legal Consequences: In cases where the employer might be at liberty to initiate action against the employee for the amount of the settlement not paid.

Is there any time frame by which Full and Final Settlement has to be completed?

Although there is no specified deadline for a Full and Final Settlement under any legislation, it is generally considered appropriate if the employee provides a time gap of 30-45 days in order to ensure finalization of his Full and Final Settlement as close to his date of exit from the organization as possible.

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