Final Settlement & Resignation Trends in India: What Candidates & HR Should Know

In an employee’s professional journey, there comes a time when he decides that he has spent enough time with a company and eventually ends his tenure with it. When an employee determines to move on to the next organization, the final conversation that takes place between them refers to the Full and Final Settlement (FnF).

This last touchpoint in the employee experience with the organization is a reflection of the company’s professionalism, and a vital step in maintaining legal compliance, not merely a financial transaction. A seamless exit process leaves a lasting positive impression on the employee and creates an opportunity to convert former employees into brand advocates. But if not done right, a complicated FnF process can also lead to frustration and legal issues.

For many businesses that are scaling, the Full and Final Settlement process involves lots of  manual calculations, inter-departmental follow-ups, and potential errors. Which is why getting a grasp of the process, its components, and the role of proactive involvement, using the right tools, becomes pivotal.

In this blog, we will try to understand the FnF process, identify recent trends in employees who are exiting, challenges in FnF settlement in India, and know how HR can convert this challenge into a streamlined, efficient, and positive experience.

What is a Final Settlement in India?

The Full and Final Settlement, or FnF, refers to the complete financial closure by calculating and paying all the money an employee is owed upon their departure from a company.

Employees can leave owing to multiple reasons such as resignation, termination, personal issues or retirement. When this separation happens, it requires clearing all pending dues from the company to the employee and recovering any vice versa.

The Payment of Wages Act 1936 states that companies are required to close this settlement on the employee’s last working day. However, in practice, due to the involvement of numerous processes, companies usually complete the full and final settlement process within 30 to 45 days of the employee’s last day.

Components of Final Settlement (Salary, Bonus, Leave, Gratuity)

For an exact calculation of FnF settlement amount, a careful consideration of all the components is a must. They are broadly divided into what the company owes to the employee (payable) and what the employee owes to the company (deductions).

Payable to the Employee

Final Salary

It is the amount that is due for the last working month of the employee. For example, if an employee leaves mid-month, the salary is calculated for the number of days they worked.

Leave Encashment

Usually, leave encashment in India is uncommon. Companies have this policy for encashing unutilized paid leaves (Privileged Leave or Earned Leave). The calculation of this amount is based on the company policy and the employee’s basic salary. For instance, if an employee has 13 pending earned leaves and their per-day basic salary is 1000, they would get 13000 in leave encashment in India.

Gratuity

Gratuity is one of the statutory benefits paid to employees who have completed at least five continuous years of service with the company. The amount is calculated using the formula: (Last Drawn Salary × 15/26) × Number of Years of Service.

Unpaid Bonuses or Incentives

This includes any performance bonus, variable pay, or sales incentive that has been earned by the employee but not yet paid must be included in the final settlement.

Pending reimbursements

Any expenses that are approved but unpaid to the employee, such as travel, mobile phone bills, or medical claims.

Deductions from the Final Amount

Notice period shortfall

If an employee does not serve their full notice period as per the employment contract, the company can deduct the salary for the shortfall period.

Statutory Deductions

Standard deductions such as Provident Fund (PF). Employee State Insurance(ESI), and Professional Tax for the final month are calculated and deducted.

Income Tax (TDS)

Tax is deducted at source based on the employee’s total earnings for the financial year, including the final settlement.

Company Loans or Advances

If the employee has taken any salary advance or loan from the company, the outstanding amount is recovered from the final settlement.

Asset Recovery

The cost of any unreturned company assets, such as a laptop, mobile phone, or access card, can be deducted if not returned in good condition.

New-Age Resignation Trends in India (2024–2025)

Every year, new trends emerge in the recruitment space. Recruiters, hiring managers, and even candidates must stay updated of these for a competitive edge. Resignation trends in India are shifting from traditional notice-period exits to no-notice resignations, silent quitting and even loud quitting. For candidates, this reflects disengagement, demand for flexibility, and frustration with rigid work cultures. For employers, it signals rising attrition, challenges in workforce planning, and the need to rethink retention strategies in a cooling economy and AI-driven workplace.

No Notice Resignation Trend

A rising number of employees who stopped serving their notice periods and exited immediately. 35% of exits skip notice periods; it is increasingly common in IT, ITES, and startups.

Silent Quitting

Employees emotionally disengage with work while staying on payroll, to avoid formal resignations.

Loud Quitting

Public, vocal exits where employees openly criticize employers, often on social media.

Micro-Retirement

Instead of waiting until the age of 65, workers are taking 3-6 month breaks every few years to travel, learn new skills, or simply prevent burnout.

Common Challenges in F&F Settlements

Even with a robust F&F process steps framework, companies find hurdles that complicate the FnF settlements in India and delay the whole process.

Discrepancies in Dues and Calculations

These discrepancies are usually caused by inaccurate attendance records, payroll data misalignment, or miscalculation of leaves. Clearer SOPs and integrated HR software solutions can be integrated to mitigate such errors.

Disputes Over Notice Period or Compensation

Sometimes, employees contest the duration of their notice period, severance pay, or final compensation. Having transparent policies, SOPs are the best way to avoid these disputes. Also, having a sit-down and talking through the issue can be a good strategy in resolving these kinds of conflicts.

Delayed Approvals Across Departments

FnF issues can magnify when multiple departments (Finance, Legal, IT) fail to communicate efficiently. Consider a single point of contact- typically an HR representative to track the F&F settlement workflow and ensure all approvals occur before deadlines.

Legal Claims or Liabilities

Sometimes, ex-employees may initiate legal action if they believe they were underpaid or unlawfully terminated. Thorough documentation of every employee exit process step helps protect the organization in such cases.

How HR Can Improve the Exit Experience

Having a smooth FnF settlement process is good for organizations, as well as leaving employees who can become potential brand advocates. Here are some key points on how HR and organizations can improve the exit experience:

Structured Exit Interviews

Instead of limiting exit interviews to a mere formality, look at it like an opportunity to capture honest feedback, understand resignation drivers, and use insights to refine policies. Exit interviews can be a great way to understand why employees are leaving. Is there some friction within the organization that is leading these exits?

Transparent Communication

Ensure clarity on notice periods, handover expectations, and final settlements to avoid friction. Clear communication avoids confusion and sets the expected time of settlement right.

Respectful Offboarding

Treat departing employees with dignity; avoid guilt-tripping or hostility that can damage employer reputation. Understand that they may have their own reasons to leave.

Legal and Financial Clarity

Ensure timely settlement of dues, PF, gratuity, and compliance to avoid disputes. The more you delay things at your end, the higher the chances of getting into a dispute with the exited employee. They often start to question your organization’s credibility and resort to legal avenues to get their dues.

Checklist for Candidates Before Resigning

As an employee. If you are planning to exit from the organization, remember to keep the following points in consideration before you put down the papers:

Evaluate your Decision again

Reflect on whether resignation is the best option; consider internal transfer, role changes or sabbaticals.

Review Employment Contract

Go on, check your notice period, non-compete clause, and other financial obligations to ensure that there are no surprises once you put down the papers.

Plan Financial Stability

Before making the final decision, ensure you have enough savings or next job offer in hand to avoid gaps and stress.

Prepare Handover Notes

Document ongoing projects, responsibilities, and contacts to leave on a professional note.

Update Your Resume & LinkedIn

This is the time to update your profile and resume on point. Note down all the achievements and roles that you did in your current role before memory fades.

Clear Dues & Assets

Return company assets ( laptop, ID card, etc.) and ensure all dues/ reimbursements are clear.

Communicate Professionally

Stay professional in your every communication, draft a polite resignation email, thank your manager, and avoid burning bridges.

Conclusion

The truth is, nobody dreams about their last paycheck when they’re excited about a new job. But how was that final settlement handled? That sticks with people.

When the FnF process gets delayed, it sours relationships, triggers panicked calls, and turns ex-employees into vocal critics on platforms like Glassdoor or LinkedIn. On the flip side, when companies do it the right way, pay on time, communicate clearly, and treat exits with the same care as onboarding, they create something valuable: goodwill.

With employees increasingly vocal about their experiences and job-hopping becoming the norm rather than the exception, your FnF process isn’t just an HR formality. It’s part of your employer brand. It’s what people remember when they’re asked about your company at networking events or in Reddit threads.

To mitigate the pitfalls of delayed FnF and its repercussions. You need clear policies, empathetic communication, and a genuine commitment to doing right by people even when they’re walking out the door. Want to learn more? Check out our other blogs here.

FAQs

How long does the final settlement take in India?

FnFs are supposed to happen on the last working day as per the Payment of Wages Act. But the ground reality is, most companies take 30 to 45 days because of departmental approvals, asset returns, and clearance processes. If it’s been longer than 45 days and you’re still waiting, you should start following up in writing. Only 65% of companies usually complete full & final settlements within 30 days.

Is PF included in the final settlement?

No. Your Provident Fund doesn’t come with your FnF payout; it’s maintained by EPFO and you withdraw it separately after leaving. What is included in FnF is your PF deduction for the final month worked. To get your full PF amount, you’ll need to file a withdrawal claim through the EPFO portal, which typically takes 20-30 days to process.

Can a company delay final settlement?

No, but it can happen. If there’s a legitimate reason, like you haven’t returned your laptop, or there’s a notice period dispute, companies might hold back your payment. But arbitrary delays without communication? That’s a problem. You can escalate to your state’s Labor Commissioner’s office if your employer is dragging their feet without a valid reason.

What rights do employees have during F&F?

You have the right to receive all earned wages, encashed leaves, and statutory benefits like gratuity (if eligible). You’re entitled to a detailed FnF statement showing all calculations. If there are deductions, the company must clearly explain them. You can’t be forced to sign documents waiving your legal rights in exchange for a settlement. And if there’s a dispute, you have the right to approach labor authorities or courts.

How is leave encashment calculated?

Take your basic salary (not gross), divide it by the number of working days in a month (usually 30, depending on company policy), and multiply by the number of unused leaves. So if your basic is ₹30,000, your per-day rate is roughly ₹1,154 (if calculated on 26 days). Got 10 leaves left? That’s ₹11,540 in your pocket. Just remember, not all companies encash all types of leaves. Sick leaves, for instance, often don’t get encashed.