When you leave a job, everything the company owes you, and everything you owe it, is settled in one final payment: the full and final settlement, or FnF. It used to take 45 to 90 days. Under the labour codes in force since November 2025, final wages must be paid within two working days. Here's what goes into it and how to check yours.
What goes into an FnF
| You receive | How it's worked out |
|---|---|
| Salary for the last month | Monthly gross ÷ days in the month × days worked |
| Leave encashment | Unused earned leave × (basic + DA ÷ 26 or 30, per company policy) |
| Gratuity | Basic + DA × 15 ÷ 26 × years, if you have 5 years (1 year for fixed-term) |
| Bonus / incentives | Pro-rata statutory bonus, plus any earned incentive as per policy |
| Reimbursements | Pending travel, phone, internet or other approved claims |
| Deducted | Why |
|---|---|
| Notice shortfall | If you served less notice than your contract requires and it wasn't waived |
| Loans and advances | Salary advances or company loans still outstanding |
| Bond / joining bonus clawback | Only if your signed contract says so |
| Unreturned assets | Laptop, ID card or equipment not handed back |
| PF, professional tax, income tax | Normal statutory deductions, with tax recalculated for the year |
How fast must it be paid?
The Code on Wages, 2019 (in force from 21 November 2025) says that when an employee is removed, dismissed, retrenched or resigns, wages due must be paid within two working days. Earlier, many companies took 45–90 days, and that was common practice rather than law.
The 2-day rule covers wages. Gratuity follows its own rule (within 30 days of becoming payable), and some items, like reimbursements needing approval or variable pay tied to a later cycle, may legitimately come later. Ask HR in writing for a dated FnF statement.
Notice period and notice pay
Your appointment letter sets the notice period, often 30, 60 or 90 days. If you can't serve all of it, there are usually three ways out:
- Waiver: your manager agrees to release you early with no recovery. Get it in writing.
- Leave adjustment: some policies let you set unused earned leave against the shortfall. Many don't, so check.
- Buyout: you, or your new employer, pay for the days not served. Whether it's based on basic or gross pay depends on your contract.
If the company ends your employment without notice, it's the other way round: it must pay you wages in lieu of notice as per your contract and the labour codes.
Leave encashment
Unused earned (privilege) leave is normally paid out when you leave. Casual and sick leave usually aren't, unless your policy says otherwise. The daily rate is basic + DA divided by 30 or 26, depending on policy. Under the labour codes, workers can carry forward up to 30 days of annual leave and must be paid for unused leave when employment ends.
Leave Encashment CalculatorCalculate your leave encashment and how much of it is tax-free.Worked example
Priya resigns: last day 20 March
Gross salary ₹70,000 a month, basic + DA ₹40,000. Service: 6 years 3 months. 18 days of earned leave left. Notice period 60 days, served 45, and the contract recovers shortfall on gross pay.
| Salary for 20 days of March (₹70,000 × 20 ÷ 31) | ₹45,161 |
| Leave encashment (18 × ₹40,000 ÷ 30) | ₹24,000 |
| Gratuity (₹40,000 × 15 ÷ 26 × 6 years) | ₹1,38,462 |
| Less notice shortfall (15 × ₹70,000 ÷ 30) | − ₹35,000 |
| FnF before PF and tax | ₹1,72,623 |
Six years three months counts as 6 years for gratuity, because the extra part is not more than 6 months. If Priya had negotiated a waiver for the 15 days, she would get ₹35,000 more.
How FnF is taxed
- Last salary and notice pay received are taxed as normal salary.
- Gratuity is tax-free up to ₹20 lakh over your career for private-sector employees.
- Leave encashment on leaving is tax-free up to the lowest of: the amount received, ₹25 lakh, 10 months' average salary, and the value of leave earned at up to 30 days per year of service. Both exemptions are available under the old and new regimes.
- Notice pay you pay to the old employer is not deductible from your income.
Your employer recalculates TDS for the whole year in the FnF month, so a big gratuity or leave payout can bring a large tax deduction. Tell your next employer your salary from this job so your tax isn't under-deducted later.
Documents to collect before you go
- Relieving letter, confirming your last working day and that you've been released.
- Experience letter or service certificate, with your role and dates.
- FnF statement showing every item paid and deducted.
- Last three payslips and the Form 16 (Form 130 from tax year 2026-27) for this year.
- PF exit date updated on the EPFO portal, so you can transfer your balance.
Checklist for HR teams
- Pay final wages within 2 working days of the last day, and gratuity within 30 days.
- Give a written FnF statement; disputes almost always start with an unexplained deduction.
- Make only deductions the law and the contract allow. Unexplained "asset recovery" is a common complaint.
- Update the exit date in the EPFO portal and issue Form 16 on time.
- Issue the relieving and experience letters on the last day, not weeks later.
More on letters in our HR letters guide, and on gratuity in the EPF and gratuity guide.
Frequently asked questions
How many days does a company have to pay full and final settlement?
Under the Code on Wages, in force since 21 November 2025, wages due must be paid within two working days of resignation, removal, dismissal or retrenchment. Gratuity must be paid within 30 days of becoming payable.
Is the 45–90 day FnF timeline still allowed?
Not for wages. That timeline was common company practice, not a legal right. Some items that genuinely need approval, like pending reimbursements, may take longer, but your final salary should not.
Can my employer hold my FnF until I return the laptop?
Employers commonly link the settlement to clearance, but they can deduct only what the law and your contract allow, such as the value of an asset you did not return. Return everything against a written acknowledgement to avoid disputes.
Can I adjust my leave against the notice period?
Only if your company policy allows it. Many companies do not, and pay out the leave while recovering the notice shortfall separately. Ask HR for the policy in writing.
Is notice pay recovery calculated on basic or gross salary?
Whatever your appointment letter or policy says. Many contracts use gross salary, some use basic. If the contract is silent, ask for the basis in writing before you agree to a buyout.
Will I get gratuity if I leave after 4 years and 8 months?
As a permanent employee, usually not, because gratuity needs 5 years of continuous service. Some courts have counted 4 years and 240 days worked in the final year as 5 years, so check with HR. Fixed-term employees qualify after 1 year.
Is leave encashment taxable?
Leave encashment received on leaving a job is tax-free up to the lowest of the amount received, ₹25 lakh, 10 months’ average salary and the cash value of leave earned at up to 30 days per year. The rest is taxed as salary. Leave encashed while still employed is fully taxable.
What can I do if my FnF is not paid?
Write to HR and keep a copy. If there is no response, file a complaint with the labour department of your state, or for gratuity apply to the Controlling Authority. You can also send a legal notice before approaching the authorities.