Full and Final Settlement: Statutory Compliance Checklist for HR

Full and Final (F&F) settlement is one of the most audit-sensitive and dispute-prone HR processes in India. Errors here often result in labour complaints, legal notices, or delayed exits that damage employer credibility.

For HR teams, F&F is not just about payroll closure—it is a statutory compliance exercise involving multiple labour laws, timelines, and documentation requirements.

This guide explains what constitutes F&F, statutory obligations, timelines, and a practical compliance checklist for Indian organisations.

What Is Full and Final Settlement?

Full and Final Settlement refers to the complete settlement of all dues payable to an employee upon separation due to:

• Resignation

• Termination

• Retirement or superannuation

• Death or permanent disablement

It includes both statutory payments and contractual dues, and must be completed within legally acceptable timelines.

Components of Full and Final Settlement

An F&F settlement typically includes:

• Salary up to last working day

• Leave encashment (as per law/policy)

• Bonus or statutory bonus (if applicable)

• Gratuity (if eligible)

• PF and ESIC contributions (final month)

• Incentives or commissions (as per terms)

• Deductions (notice pay, recovery, advances, etc.)

HR must ensure no statutory entitlement is waived, even if company policy says otherwise.

Statutory Timelines HR Must Track

Different laws prescribe different timelines, which HR must reconcile:

• Payment of Wages Act:

  • Within 2 working days (termination)

  • Within 7 working days (resignation)

• Shops & Establishments Acts (State-specific):

  • Typically 7–30 days

• Gratuity Act:

  • Pay within 30 days of eligibility

  • Interest payable for delays

In practice, HR should aim for F&F closure within 30 days, unless gratuity extends separately.

Key HR Responsibilities in F&F Compliance

HR’s role goes beyond payroll calculations:

• Verify last working day vs resignation acceptance

• Validate leave balance against statutory rules

• Ensure gratuity eligibility is not overlooked

• Coordinate with PF / ESIC teams for final filings

• Maintain signed settlement statements

• Issue experience and relieving letters on time

Any delay or omission can be interpreted as unfair labour practice.

Common Compliance Mistakes HR Should Avoid

• Delaying F&F until IT clearance is complete

• Forfeiting earned leave without legal backing

• Withholding gratuity for misconduct without due process

• Recovering notice pay without contractual clarity

• Not sharing settlement breakup with the employee

Transparency and documentation are critical risk controls.

🗹 Full and Final Settlement – HR Compliance Checklist

🗹 Last working day formally approved and recorded
🗹 Salary calculated up to last working day
🗹 Leave encashment checked against law and policy
🗹 Bonus eligibility reviewed (statutory or contractual)
🗹 Gratuity eligibility assessed and initiated
🗹 PF and ESIC contributions included till exit month
🗹 Recoveries legally supported and documented
🗹 Settlement statement shared with employee
🗹 Payment made within statutory timelines
🗹 Relieving and experience letters issued

Statutory Framework Governing F&F Settlement

Conclusion--

Effective labour law compliance depends on how well HR operations, payroll, and business processes work together. When compliance is embedded into everyday workflows, organisations reduce risk, improve accuracy, and build sustainable governance systems. HR teams that prioritise integration over isolation are better positioned to manage compliance confidently and consistently.