Full and Final Settlement Letter Format
A full and final (F&F) settlement letter is a formal statement issued to a departing employee detailing all amounts payable or recoverable at the end of employment — including pending salary, leave encashment, bonus, gratuity (if eligible), and any deductions for loans, advances, or notice period shortfall.
In India, HR issues this letter after exit clearance (no dues) is completed, typically alongside or shortly before the final payment is processed, so that the employee has a transparent breakup of what they are being paid and why.
Full and Final Settlement Letter — sample format
Copy the template below and replace the [bracketed] fields.
[Company Letterhead]
Date: [Date]
To,
[Employee Name]
[Employee ID]
Subject: Full and Final Settlement Statement
Dear [Employee Name],
Please find below the full and final settlement statement for your employment with [Company Name], for the period [Date of Joining] to [Last Working Day].
Earnings
Pending Salary (up to last working day): [Amount]
Leave Encashment ([X] days): [Amount]
Pending Bonus/Incentive (if applicable): [Amount]
Gratuity (if eligible, per Payment of Gratuity Act, 1972): [Amount]
Other Reimbursements: [Amount]
Gross Payable: [Amount]
Deductions
Notice Period Shortfall ([X] days): [Amount]
Loan/Advance Recovery: [Amount]
TDS (Tax Deducted at Source): [Amount]
Other Deductions: [Amount]
Total Deductions: [Amount]
Net Amount Payable: [Amount]
This amount will be credited to your registered bank account [Account ending in XXXX] within [Timeframe] from the date of this statement, subject to completion of exit clearance formalities. Your Form 16 for the relevant financial year will be issued separately.
Please treat this as a final and complete settlement of all dues between you and [Company Name]. Should you have any queries regarding this statement, please contact HR/Payroll within 7 days of receipt.
Regards,
[HR/Payroll Manager Name]
[Designation]
[Company Name]
What to include
- ✓ Itemised earnings breakup — pending salary, leave encashment, bonus and gratuity shown as separate line items for transparency
- ✓ Itemised deductions breakup — notice shortfall, loan recovery, and TDS clearly stated to avoid disputes over net payout
- ✓ Net payable amount and payment timeline — the operative figure and the committed date of credit to the employee's account
- ✓ Reference to gratuity eligibility — explicitly ties gratuity payment (where applicable) to the Payment of Gratuity Act, 1972
- ✓ Query window clause — gives the employee a defined period to raise objections before the settlement is treated as final
Legal notes (India)
- § Under Section 5(2) of the Payment of Wages Act, 1936, wages earned must be paid before the expiry of the second working day from the date the employment is terminated by the employer; while this provision specifically addresses employer-initiated termination, many companies apply the same short timeline as good practice for resignations too.
- § Gratuity under the Payment of Gratuity Act, 1972 is payable once an employee completes 5 years of continuous service (with an exception for death or disablement), calculated at 15 days' wages for every completed year of service, and should be shown as a distinct line item, not bundled into general severance pay.
- § Any deduction for notice period shortfall or loan recovery must be based on amounts genuinely owed and ideally pre-agreed in the appointment letter or a loan agreement — deducting arbitrary or undocumented amounts can expose the employer to a wage-dispute claim.
Frequently asked questions
How long does full and final settlement take in India?
Is gratuity part of full and final settlement?
Can an employer deduct notice period shortfall from the final settlement?
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