Documents and records
Full and final settlement: closing an employee's last month
A full and final settlement is the closing payment made when an employee leaves, covering everything still owed in both directions. It adds pay for the days worked in the final month along with any leave encashment and dues under the employee's terms, subtracts an outstanding advance or notice shortfall, and closes the record with one figure.
Last reviewed: September 2026
Also called: FnF, F and F, full and final, final settlement, FNF settlement
In plain English
When someone leaves, the company works out everything it still owes them and everything they still owe back, then pays the difference once. That payment closes the account.
How it works in detail
An employee hands in a resignation on a Tuesday and the questions start the same afternoon: what the part month pays, whether the leave balance is worth anything, and when the money arrives. The settlement is that list written down. On the credit side sit the days worked in the final month, earned leave the policy says is encashable, an incentive already earned, and gratuity where the Payment of Gratuity Act, 1972 applies to that employee.
On the recovery side sit the unpaid balance of a salary advance, a notice shortfall where the appointment letter provides for one, and any loan the business gave. Wage law fixes a period within which dues to a leaving employee must be paid, so confirm the one that applies to you with your consultant instead of letting the file sit. Write the settlement out line by line and have the employee sign a copy.
A worked example
The setup
Say Rehana resigns and her last working day is 12 August. Her salary is INR 34,500 a month, August has 31 days, and an advance balance is still open.
The calculation
INR 34,500 / 31 = INR 1,112.90 per day, rounded to two decimals. 12 days x INR 1,112.90 = INR 13,354.80 earned for the part month. Less the advance balance of INR 4,000 = INR 9,354.80 payable.The result
Rehana is paid INR 9,354.80. The statement shows the 12 days, the day rate it was worked out on, and the advance closed against that amount.
Common mistakes
- Holding the whole settlement back until a laptop or a set of keys comes in. Recover the value of what is unreturned as a named line and release the balance the same week.
- Overlooking the advance balance and paying the part month in full. Recovery instalments stop when the salary stops, so the outstanding amount is settled here or written off in writing.
- Giving a leaving employee a number over the phone with no statement behind it. Write out what was added, what was recovered and the day count used, and have both sides sign the sheet.
How VTClock handles it
VTClock does not compute a settlement, gratuity or notice recovery, and it disburses nothing. It supplies the exit month's attendance, the salary figure, the slip and the advance recovery position.
Frequently asked questions
How soon do I have to pay a leaving employee their dues?
Wage law fixes a period within which wages owed to an employee who resigns or is removed have to be paid, and it varies with the act and the state rules covering your establishment, so confirm the period with your consultant. In practice, close the attendance for the final month first, because no line of the settlement can be worked out until the day count is fixed.
Can I hold the settlement until company property comes back?
Withholding the entire payment until an item is returned creates a dispute that costs more time than the item is worth. Take a signed handover list at exit, put a named recovery line on the statement for anything unreturned, valued the way the appointment letter provides, and release the balance. Tell the employee the amount and the reason in writing.
Does an employee who is dismissed still get a settlement?
Yes. Wages for days already worked are owed whatever the reason for leaving, and so is anything else the appointment letter or the law makes payable, including gratuity where the employee qualifies for it. What usually changes with a dismissal is notice pay and discretionary items, so take your consultant's view before you deduct anything from the final figure.
What if the outstanding advance is larger than the final month's pay?
Then the settlement closes at zero and a balance is still open. Agree the repayment in writing before the employee walks out, with the amount, the dates and how it will be paid, and note it on the settlement statement that both sides sign. An unwritten balance chased after someone has started another job rarely gets recovered.
Related terms
- GratuityGratuity is a lump sum an employer pays an employee for long unbroken service, under the Payment of Gratuity Act, 1972.
- Earned leaveEarned leave is paid leave an employee builds up by working, credited in proportion to days actually worked rather than granted upfront at the start of the year.
- Advance recoveryAdvance recovery is the taking back of a salary advance through fixed deductions from later pay.
- Salary slipA salary slip is the statement an employer gives an employee for one wage period, setting out what was earned, what was deducted and what was paid.
- Net salaryNet salary is what is left of a month's earnings after every deduction the employer is required or authorised to make has come off.
- Payable daysPayable days are the number of days a monthly salary is spread across, and the number of days in a given month the employee is actually paid for.
Modules that touch this
- SalaryMonthly pay builds from attendance fractions, holidays, weekly offs and approved leave, so there are no side calculations.
- Advance salaryGive an advance when staff need one. Recovery spreads over the following months and shows up on every slip.
- Salary slipsBranded, printable slips with earnings, an attendance summary and advance recovery. Staff see the same figures you print.
See how VTClock handles full and final settlement
Tell us how your team is paid and where attendance is recorded today. We will show you what the module does with it.