Full & Final Settlement
Under New Labour Code
Day
What is the 2-day F&F rule?
As per Section 17(2) of the Code on Wages, 2019, all dues payable to an employee must be cleared within 2 working days of resignation, termination, dismissal, or retrenchment.
What is included in F&F?
Components include unpaid salary, leave encashment, pro-rata bonus, pending reimbursements, notice period adjustments - after deducting loans, notice shortfall, TDS, and unreturned assets.
Does gratuity have to be paid within 2 days?
No - gratuity follows a separate timeline of 30 days under the Payment of Gratuity Act, while PF transfer is handled by EPFO after the employee submits a claim.
When does the rule apply?
It applies in cases of resignation, termination, dismissal, retrenchment, retirement, and closure of the establishment - all triggering the 2-day wage settlement requirement.
What happens if the employer delays?
Employees can approach the Labour Department - delays may lead to penalties under Section 54 of the Code on Wages, including fines up to Rs 50,000 for the first offence.
Does it apply to all employees?
Yes - the rule covers all employees irrespective of salary, role, or industry, including contract workers, fixed-term employees, and senior management.
SETTLE ON TIME. STAY COMPLIANT.
2-Day F&F
Settlement Rule
The rule under Section 17(2) applies universally.
There is no exemption based on salary, role, or industry.
GRATUITY MUST BE INITIATED WITH F&F
Computation starts on last working day
Payment follows within 30 days
APPLIES TO ALL EMPLOYEES.
NO EXCEPTIONS.
Documents to be Provided
At Employee Exit
How to Process
F&F Settlement
Trigger the exit workflow on resignation acceptance.
The moment resignation is accepted or termination is decided, HR must simultaneously notify IT, Finance, Admin and Payroll. Running these sequentially can make 2-day compliance impossible.
Complete departmental clearances within the notice period.
All clearances should be completed before the last working day, not after it. Each department should sign off on the last working day.
Calculate all wage components.
Payroll computes unpaid salary for days worked, leave encashment, pro-rata bonus, pending reimbursements, and overtime dues.
Calculate all deductions.
Deduct notice period shortfall, outstanding loans or advances, value of unreturned assets, and TDS on taxable F&F components.
Compute net F&F amount.
Net F&F equals total credits minus total deductions. Prepare an itemised F&F settlement statement showing every component with INR amounts.
Process bank transfer within 2 working days.
Transfer the net F&F amount to the employee's registered bank account within 2 working days of the last working day.
Initiate gratuity and PF processing in parallel.
Calculate gratuity where applicable and issue Form L within 30 days. Inform the employee about PF transfer or withdrawal through EPFO.
Penalties for Delayed
F&F Settlement
Under Section 17(3) of the Code on Wages, if the employer fails to pay wages within the prescribed timeline, the employee has the right to file a complaint with the Controlling Authority. The Authority can direct payment of dues along with compensation.
Under Section 54 of the Code on Wages, contravention of wage payment provisions attracts a fine up to Rs 50,000 for the first offence. For repeat offences within 5 years, the penalty escalates to Rs 1,00,000 fine and/or imprisonment up to 3 months.
Under Section 45, the Controlling Authority can direct the employer to pay compensation up to 10 times the wages due - in addition to actual wages.
Beyond statutory penalties, delayed F&F damages employer brand and creates attrition risk.
COMMON MISTAKES TO AVOID
IN F&F SETTLEMENT
Mistake 1: Treating the 2-day rule as covering all exit dues including gratuity and PF. The 2-day rule covers Section 17(2) wages only. Gratuity and PF follow separate timelines.
Mistake 2: Running clearances after the last working day. Clearances must be completed during the notice period.
Mistake 3: Withholding F&F because the employee has not returned a laptop. The employer can deduct asset value where documented, but withholding the entire settlement is risky.
Mistake 4: Not calculating TDS correctly on F&F components. F&F includes taxable components requiring accurate deductions.
Mistake 5: Not issuing the F&F settlement letter with itemised breakdown. Each component should be clearly signed by employer and acknowledged by employee.
F&F Settlement - Example Breakdown
| Component | Calculation | Amount (Rs) |
|---|---|---|
| Employee | E.g.: Mr. Sahil - 3 years service, monthly CTC Rs 60,000 | - |
| Basic + DA (50% of CTC) | Rs 30,000/month | - |
| Last working day | 15 April 2026 (served notice) | - |
| Credits | ||
| Unpaid salary (1-15 April) | Rs 30,000 gross ÷ 30 × 15 days | Rs 30,000 |
| Leave encashment (18 unused EL days) | (Rs 30,000 ÷ 30) × 18 | Rs 18,000 |
| Pro-rata bonus | Rs 7,000 ceiling × 8.33% × 15/365 | Rs 239 |
| Pending travel reimbursement | Approved claim from March 2026 | Rs 4,500 |
| Total credits | Rs 52,739 | |
| Deductions | ||
| Employee PF | 12% × Rs 15,000 (15 days basic) | Rs 1,800 |
| Professional Tax (April) | Maharashtra rate | Rs 200 |
| TDS on taxable F&F | At applicable slab rate | Rs 3,500 |
| Notice period recovery | Nil - full notice served | Rs 0 |
| Total deductions | Rs 5,500 | |
| Net F&F payable | Credits minus deductions | Rs 47,239 |
| Payment deadline | Within 2 working days of 15 April = by 17 April 2026 | - |
| Separate Timelines | ||
| Gratuity | 3 years service - below 5 years | Rs 0 |
| PF transfer | Employee initiates through EPFO portal | Separate |
Note: If this employee were a fixed-term employee with 3 years of service, gratuity would be payable under the 1-year FTE rule.
Fixed Term
Employment
Introduction
Fixed-term employment (FTC) is an employment contract in which an organization recruits an employee for a limited time period. Generally, it is for a period of one year; however, depending on necessity, the same can be renewed.
In FTC, the employee is not in regular employment of the company and is there only to perform explicit and short-term tasks. In such events, the contract automatically gets over on a specific date or at the conclusion of a particular assignment.
Key Features of Fixed Term Employment
Types of Employment Can Be Categorized As Below
Permanent or fixed-term employees
Temporary
Casual employees
Apprentices or trainees
Probationers
Contractors and sub-contractors
Badlis
Fixed term employment helps organizations maintain flexibility, reduce long-term liabilities, and recruit specialized talent for temporary projects. It also provides employees valuable professional experience and industry exposure.
Advantages &
Disadvantage
Advantages of Fixed Term Employment
For Employers
- Flexible workforce management
- Reduced operational costs
- Better project staffing
- Easier workforce expansion during peak demand
- Access to specialized professionals
For Employees
- Opportunities for skill enhancement
- Professional networking exposure
- Experience across industries
- Easier entry into competitive organizations
- Flexible career options
Disadvantages of Fixed Term Employment
For Employers
- High employee turnover
- Continuous recruitment and training costs
- Reduced employee loyalty
- Knowledge retention challenges
For Employees
- Limited job security
- Uncertain career stability
- Reduced long-term employee benefits
- Psychological stress regarding future employment