The Employee Full & Final Settlement (FnF) refers to the process of settling all the outstanding dues and liabilities of an employee who is leaving the organization. It is the final payment made to the employee after the termination of employment. The full and final settlement includes various components such as unpaid salaries, unused leaves, gratuity, bonuses, etc.
As well as any other benefits that the employee may be entitled to. The main purpose of the Full & Final Settlement is to ensure that the employee’s financial obligations towards the SaaS company are fulfilled, and that there is a smooth transition of the employee’s departure from the organization. It also ensures that the employee receives all the rightful dues and benefits.
More so as per the company policies and labor laws. The employer usually initiates the Employee Full & Final Settlement (FnF) process, and the employee must complete the necessary formalities to complete the process, for instance, clearing all outstanding dues, returning any company property or equipment, and obtaining a no-objection certificate from the employer.
As you’ll learn herein, an Employee Full & Final Settlement may include various components, which may differ from organization to organization and depend on the employment contract and labor laws. Sometimes, it also depends on company policy. It is important to note that the FnF is a complex process requiring extensive knowledge and experience.
What An Employee Full & Final Settlement (FnF) Entails In Payroll
For any set of businesses, employees are the most significant assets. Right from employee onboarding to employee exit, there are gigantic tasks associated with managing the employee life cycle in an organization. No matter how big or small the company is, every organization has certain obligations toward its long-term and short-term employees.
On that note, the Employee Full & Final Settlement (FnF) is one of them. When an employee decides to end his/her services, the employer must follow the FnF procedure to settle the employee’s compensation as per policies. Full and Final settlement includes various activities like documentation, deductions, arrears, receivables, pending salary, earnings, and exit interviews.
When it comes to managing Payroll Software, Full & Final Settlement, commonly known as the FnF process, is followed by the employer when an employee resigns from an organization or after terminating their business employment contract. In this process, the employee has to get paid for the last working month + any additional earnings or deductions.
The procedure is pretty simple and is as per the guidelines set out in the appointment contract. Thus, the method of paying the employee and settling the calculation during the resignation process is called the Final Settlement of the employee. Employers can relieve the employee first and then do the FnF or do the final settlement first and then relieve the employee.
How The Policy For Employee Full & Final Settlement Works
The full and final settlement (FnF) is a legal process regulated by the respective State Governments. It ensures that employees are paid within a certain period when they leave their jobs. Depending on the organization’s policy, this settlement can happen before or after the employee’s exit. There is also a traditional and contractual obligation for employees.
Mainly to give notice before quitting, depending on each company’s policy. This notice period is typically two weeks, but it can vary according to the company. The employee must be paid for the entire duration of the notice period as part of the settlement. In addition to the payment for the notice period, the employee’s final pay must include all outstanding wages.
Especially for hours worked, allowances, and any applicable penalties. It should also include any accumulated earned leave the employee may have unused when leaving. The new labor law for Full and Final Settlement (FnF) payments states that the company must pay the complete salary settlement within two days after the employee’s last working day.
However, there is no formulated date for the full and final payment settlement, and usually, 30-45 days is ideal to pay the total and absolute compensation. The new age code mandates that employers pay full and final settlements to employees within two days of their last day of employment. This applies to terminated, discharged, economized, resigned, or due to a closure.
According to the law, if an employee has been
- terminated or discharged from service;
- economized or has resigned from the organization; or
- unemployed if the company has closed, all salary settlements related to the employee must be paid within two days.
When an employee leaves a company, the Full & Final Settlement Process begins only when the employer accepts the employee’s willingness to leave the company. As part of this process, the employee must provide an adequate notice period to the employer. Additionally, the employee must hand over all company property and take an acknowledgment signature.
The management will then calculate unpaid salary, leave encashment, and other benefits such as gratuity. Once this is done, HR will issue a full and final statement to the employee and hand over the cheque for remuneration. The employee must check and agree on the same before receiving the payment.
The Simple Steps To Handle Employee Full & Final Settlement (FnF)
As we mentioned, the Employee Full & Final Settlement (FnF) refers to settling all the dues and liabilities of an employee leaving the organization. It includes payment of pending salaries, leave encashment, gratuity, and any other benefits to which the employee may be entitled. Dealing with the employee’s complete and final settlement process is essential.
In addition, attention to detail is also critical to avoid any unforeseen legal or financial consequences. It’s advisable to consult an HRIS System expert or legal advisor to ensure compliance with labor laws and company policies. In today’s competitive world, client satisfaction is the key to success in any business. A great outcome in customer relationship management is crucial.
For one thing, it becomes an indispensable aspect of an organization or a business. On one side, your client already knows your company but speaks with your employees. On the other side, your employees are the face of your organization. Thus, when client satisfaction holds value in your business, employee satisfaction in your organization needs much more than that.
An organization’s HR is generally in charge of handling the FnF settlement process, which usually takes a month to be completed from the date of the employee’s resignation. Be that as it may, a few steps can help you ensure a thriving settlement.
Consider the following simple settlement steps:
- Inform the employee: The first step is to inform them about the entire and final settlement process and provide them with the necessary forms and documents.
- Calculate the dues: Calculate the employee’s pending salaries, leave encashment, gratuity, and any other benefits that they may be entitled to as per the company’s policies.
- Deduct outstanding dues: Deduct any outstanding dues from the employee’s final settlement, such as loan dues, advances, or unpaid notice period.
- Issue necessary documents: Provide the employee with the required documents, such as the full and final settlement statement, Form 16, and other relevant certificates.
- Timely payment: Ensure timely payment of the employee’s dues per company policies and labor laws. Payment modes can be through bank transfer, cheque, or cash, per the employee’s preference.
- Obtain clearance: Before releasing the final settlement payment, ensure the employee has cleared all their pending dues or liabilities, such as equipment, uniforms, etc.
- Record keeping: Maintain proper records of the entire and final settlement process, including documents, payments, and any disputes, if any.
Regarding the best practices for performance management systems, while monitoring business employees, the final settlement is typically paid within a specific time frame, per company policies and labor laws, to avoid legal or financial disputes. It’s important to note that the Full & Final Settlement Amount may vary depending on various factors.
Such as the employee’s designation, service duration, and the employment contract terms and conditions. It’s essential to consult an HR expert or legal advisor to ensure the full and final settlement complies with labor laws and company policies. However, businesses and employees must be aware of some significant components of the final settlement plan first.
Some of the significant components are as follows:
- Unpaid Salaries: This includes the outstanding amount of the employee’s salary until their last working day in the organization.
- Unused Leaves: This component includes the value of any accumulated leaves that the employee has not availed of during their tenure in the organization.
- Gratuity: This is a lump sum payment made to employees who have completed a specified according to the Payment of Gratuity Act of 1972
- Bonus: This includes any bonuses or incentives to which the employee may be entitled per the company policies or employment contract.
- Provident Fund: If the employee was a member of the Provident Fund, then the employer has to settle their Provident Fund balance.
- Other benefits: This includes any other benefits that the employee may be entitled to, such as reimbursements, allowances, or any other benefits as per the employment contract or company policies.
- Tax Deductions: calculation and, if necessary, deduction of any unpaid income tax or other required deductions.
- Reimbursements: clearance of any outstanding reimbursement claims, including those for travel, healthcare, or other authorized refunds.
- Company Assets: Return any company-owned items given to the employee during employment, including laptops, mobile phones, access cards, etc.
- Settlement of Loans or Advances: The repayment or withdrawal of such sums from the final payment may be necessary if the employee received loans or advances from the business.
- Non-compete or Confidentiality Agreements: Confirm that any non-compete or confidentiality agreements the individual signed while working for the company have been followed.
Additionally, there are also Exit Formalities to consider. Whereby employees complete all exit-related paperwork and documentation, including the delivery of a letter of resignation, a clearance certificate, or any other applicable documents.
In Conclusion:
As you can see, the full and final settlement is an essential process every organization must undertake when an employee leaves the company. It ensures that the employee’s financial obligations towards the company are fulfilled and there is a smooth transition of the employee’s departure. The full and final settlement includes various components.
Such components include unpaid salaries, unused/new leaves, gratuity, bonuses, and other benefits dependent on company policies and labor laws. The settlement process must be carried out with utmost care and attention, and the employer must ensure that all the necessary formalities are completed promptly and accurately. The process should be transparent.
In addition, the employee should be informed about the process and their entitlements. It’s advisable to consult an HR expert or legal advisor to ensure compliance with labor laws and company policies. A well-executed final settlement process can leave a positive impression on the outgoing employee, who may become a brand ambassador for the organization.
It can also prevent any legal or financial disputes arising from improper process handling. Therefore, organizations must have a robust, efficient full, and final settlement process.
