How the settlement is worked out
Full and final settlement brings every amount owed in either direction into one statement. The calculator adds what the employer owes and subtracts what the employee owes:
F&F = salary for days worked + leave encashment + gratuity + bonus and reimbursements − notice shortfall − loans and advances − other recoveries
- Salary for days worked = monthly gross ÷ days in the month × days worked
- Leave encashment = (basic + DA) ÷ 30 × unused earned leave
- Gratuity = (basic + DA) × 15 × years ÷ 26, counting a part year above six months as a full year, if eligible
- Notice shortfall = monthly gross ÷ days in the month × notice days not served
Worked example
| Component | Calculation | Amount |
|---|---|---|
| Salary for 20 of 30 days | 90,000 ÷ 30 × 20 | ₹60,000 |
| Leave encashment, 18 days | 45,000 ÷ 30 × 18 | ₹27,000 |
| Gratuity, 6 years 8 months | 45,000 × 15 × 7 ÷ 26 | ₹1,81,731 |
| Reimbursements | ₹6,500 | |
| Notice shortfall, 15 days | 90,000 ÷ 30 × 15 | −₹45,000 |
| Salary advance | −₹20,000 | |
| Net before TDS | ₹2,10,231 |
Timelines
Under Section 17(2) of the Code on Wages, wages due when an employee resigns or is removed, dismissed or retrenched must be paid within two working days. Gratuity must be paid within 30 days of it becoming payable. Prepare the calculation during the notice period so the payment is not delayed by the payroll calendar.
Before you pay
Check the contract for how notice pay and leave encashment are defined, confirm any waivers the manager agreed, recalculate TDS up to the exit date and give the employee a written settlement statement. Some components, such as retrenchment compensation, need legal advice.
Read the complete full and final settlement guide, and check the parts in detail with the gratuity calculator and leave encashment calculator. For the wider picture, see our guide to payroll software in India.
Frequently asked questions
What is included in full and final settlement?
Salary for days worked, leave encashment, gratuity if eligible, bonus, incentives and reimbursements, minus notice shortfall, loans, advances and other recoveries.
How soon must F&F be paid?
Section 17(2) of the Code on Wages requires wages due on exit to be paid within two working days. Gratuity must be paid within 30 days of becoming payable.
How is notice shortfall recovered?
Usually monthly salary as defined in the contract divided by the days in the month, multiplied by the notice days not served.
Does the calculator include tax?
It shows the amount before TDS. Salary, bonus and notice pay are taxable, while gratuity and leave encashment at exit can be partly exempt.
Is gratuity always part of F&F?
Only if the employee is eligible: usually five years of continuous service, or one year for fixed-term employees under the Code on Social Security.
