Full and Final Settlement

What is the Full and Final Settlement?

It is a process that takes when an employee decides to leave the organization or for any reason he/she is terminated by the organization. It is a formal process of settling unpaid salary and other benefits of the employee. It generally happens on an employee’s last working day. The objective of this process is to make employee’s exit process as smooth as possible and to ensure that there are no issues even after an employee leaves the organization. It is an important process for both the HR and finance department.

Activities in Final Settlement

1. Admin Clearance

This is the process of getting a clearance from the admin for returning the laptop, computer or any other devices and assets provided to the employee during their tenure in the organization. In case any of the devices or asset is harmed or damaged, then the employee can be held responsible for it.

2. Finance Clearance

As we mentioned earlier, final settlement is there to ensure that there are no unpaid dues between leaving employee and the organization. The finance department verifies that employee is paid for their due salary, bonus, leave encashment, pension, gratuity, etc.

3. HR Clearance

HR department ensures that the final settlement only happens when the employee have completed their notice period. In case the employee doesn’t want to complete the notice period and wants to leave early, then according to the company policies, HR may ask the employee to compensate the organization for not serving the notice period. Apart from all this, the HR department also helds the exit interview on the last day of the employee’s last working day.

Full and Final Settlement Process

Full and final settlement is not just a single-step process, it includes multiple steps and a considerable amount of time to complete. Following are the steps of the full and final settlement process:

Step 1: Resignation or Termination application

First step of this process starts when an employee applies for resignation or gets communicated about their termination. In both cases, a resignation letter or termination letter is drafted and gets sent to the HR department or the subordinator for their approval.

Step 2: Acceptance Letter for Resignation

After an employee hands over their resignation letter, the HR department or subordinator has to decide on whether to accept their resignation or not, and if they accept the employee’s resignation, they have to write an acceptance letter and send it to the employee.

Step 3: Verification by HR Department

Once the resignation acceptance letter is sent to the employee, it is confirmed that the employee is leaving, and their verification process starts by getting all clearance already mentioned above. Employee has to get these clearances and send them to the HR department for verification.

Step 4: Calculation of Final Payroll

After getting the verification done, HR checks employee’s leave balance, unpaid salary, gratuity, bonuses, etc. And calculate all to them to get the final amount payable to the employee.

Step 5: Preparation of Settlement Agreement

Statement agreement is prepared by the HR department after verifying all the details and getting a final amount payable to the employee. A settlement agreement should include all the calculations regarding the employee’s payroll.

Step 6: Issue of Cheque

Once the settlement agreement is prepared, it is sent to the finance or accounts department for further processing. In that process accounts department will prepare a cheque for the amount mentioned in the settlement agreement and send it to the employee along with a copy of the full and final statement.

What is a Full and Final Settlement Letter?

A full and final settlement letter is given to the employee leaving the organization, stating that the final settlement is done with the employee and there are no unpaid dues remaining. It has all the details regarding the dues paid to the employee, and it also mentions that the check for the same amount is given to the employee. A full and final settlement letter can be used in case there is any dispute regarding salary from former employees.

Things to Include in Full and Final Settlement Letter

  • Amount of settlement
  • Cheque of the settlement amount
  • Date of employees’ resignation/termination
  • Date for which cheque is given
  • Statement of the account

Full and Final Settlement Letter Format

Full and Final Settlement Letter Example

Date: June 30, 2022,

Mr. Nikhil Nayak
35, GKP Society,
Indira circle,
Rajkot – 360006

Subject – Full & Final Settlement

Dear Mr. Nikhil,

In continuation of your resignation letter dated June 01, 2022 and subsequent relieving from your duties on June 30, 2022, your full & final settlement has been prepared in line with the terms & conditions of your appointment letter.

Please find enclosed a cheque bearing no. 62062RSC3 dated July 30, 2022 for Rs. 70,700 drawn on State Bank of India towards your full & final settlement. Also attached is the statement of settlement of the account.

With this, your account is settled with our company, and nothing is due from the company to you.

Thank you
With Regards,
Jagdish Prajapati
HR Manager

Frequently Asked Questions

What is the Period of Settlement?

It depends on the company policies, but generally the payment is processed in 30-45 days. If it’s not processed within the days mentioned in the policy, then the employee will have the right to take legal actions against the employer.

What is a Full and Final Batch Settlement?

When the organization have too many employees asking for resignation or wants to fire too many employees, then they apply batch settlement and process the final settlement of multiple employees at a time.

What will Happen to the Loan Balance of the Employees When you Settle them?

The organization will deduct the remaining loan amount from the employee’s final settlement amount, but if the loan amount is even higher than that, then the organization will try to recover it from the employee.

What Happens when you don’t pay the Recovery Amount?

If you don’t pay the recovery amount, then the company can take legal steps against you and even withhold your documents like NOC or experience letter until they recover the money from you.

Is it Necessary to Serve a Notice Period for the Final settlement?

Whenever any employee joins the organization, they sign a policy agreement mentioning that he/she would serve the mentioned notice period before leaving the organization. Therefore it’s important for the employee to serve a period in order to get proceed with the full and final settlement with the organization. In case any employee doesn’t want to serve the notice Period, then they can compensate the organization for leaving early.

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