What is a Full and Final Settlement Letter?

A full and final letter is a document given to an employee by the employer when the employee resigns or is let go by management. This document serves as proof that the employer has paid all dues up to the employee’s last working day as part of the full and final (FnF) settlement. This also includes any additional earnings or deductions.

Importance of Full & Final Settlement (FnF) Letter

The primary purpose of a full and final settlement letter is to provide a clear record of the settlement terms, thereby preventing future disputes. It outlines the settlement amount, confirms the release of claims, and provides a sense of closure for both parties. This letter is essential for maintaining legal compliance as well. 

Key Components of Full & Final Settlement (FnF)

  1. Unpaid Salary: When an employee resigns, the salary owed up to their last working day must be calculated and paid. This includes any annual benefits like Leave Travel Allowance (LTA) and other arrears, as per the company’s policy. 
  2. Employee Provident Fund (EPF) and Pension: Both the employee and employer contribute to the Provident Fund and Pension Fund. Upon resignation, these funds can either be transferred to a new employer or paid out to the employee. Pension is payable if the employee has completed 10 years of service. 
  3. Gratuity: Employees who have served for 4 years and 10 months or more are entitled to gratuity, payable within 30 days of resignation or termination. Delays beyond 30 days will incur interest. 
  4. Deductions: Tax liabilities, such as TDS, are deducted from the Full & Final settlement amount, except for gratuity and leave encashment, which are exempt under the Income Tax Act. 
  5. Leave Encashment: Unused earned leaves are converted into a monetary payout based on the employee’s daily wage and accrued leave balance, following company policies and regional labor laws. 

Process of Full & Final Settlement

  • Admin Clearance: This step involves returning company assets such as laptops or other devices issued to the employee. If any assets are damaged, the employee may be held responsible. 
  • Finance Clearance: The finance department ensures that all financial obligations, including unpaid salary, bonuses, leave encashment, pension, and gratuity, are settled. 
  • HR Clearance: HR verifies that the employee has completed their notice period before finalizing the settlement. If the employee leaves early, HR may require compensation as per company policy. Additionally, HR conducts an exit interview on the employee’s last working day.

Timeline for Full & Final Settlement

Employees are entitled to have their dues settled within a reasonable period, typically within 30-45 days from their last working day. If the employer fails to meet this timeline, the employee may seek legal recourse, and the employer may be required to pay interest on the outstanding amounts as a penalty.

Full & Final Settlement Letter Sample

full & final settlement letter

Frequently Asked Questions

A Full & Final Settlement Letter Template is a pre-designed document used to formally conclude employment with an employee. It outlines all the financial settlements and entitlements that need to be addressed upon an employee’s departure, ensuring clarity and compliance. You can download our template in both Word and PDF formats for ease of use.

Our page provides a comprehensive Full & Final Settlement (FnF) Letter sample that you can use as a reference. This sample illustrates the format and content typically included in a settlement letter, helping you draft a professional and accurate document for your needs.

The Full & Final Settlement Letter available in Word format can be easily customized to fit your specific requirements. Simply download the Word file, open it in Microsoft Word, and make the necessary edits to tailor the letter to your organization’s needs.

Yes, the Full & Final Settlement Letter template is available in PDF format as well. Download the PDF version if you need a ready-to-print document or if you prefer a fixed-format version that cannot be easily altered.

Absolutely. The full and final settlement letter can be adapted for email communication. Simply convert the content from the Word or PDF format into the body of your email, ensuring to maintain the professional tone and clarity of the settlement details.