HR-Issued LetterUpdated June 2026Employer-Side Guide
Full and Final Settlement Letter from HR to Employee — Format, Template & Employer Guide India 2026
A full and final settlement letter from HR to employee is not just a courtesy document — it is the employer's formal confirmation that all separation dues have been calculated, itemised, and cleared. Indian law does not prescribe one mandatory format, but the Payment of Wages Act, 1936, the Payment of Gratuity Act, 1972, and the Code on Wages, 2019 create clear statutory obligations on what must be included and when it must be paid. This guide gives HR teams, payroll managers, founders, and people operations professionals everything they need to issue a correct, legally sound F&F settlement letter — with an embedded generator, a full template, a sample letter, a checklist, and a common-mistakes walkthrough.
✓ Covers salary, gratuity, leave, bonus & reimbursements✓ Cites Code on Wages, 2019 (not repealed Bonus Act)✓ Pre-issue HR checklist included✓ Employee acknowledgement format included✓ Works for resignation, termination & retirement
Last updated: June 2026Reviewed by: OfficeDraft Legal TeamTemplate version: v2.1 — June 2026Methodology: Primary statute review + HR practitioner input
What Is a Full and Final Settlement Letter from HR to Employee?
A full and final settlement letter from HR to employee (commonly called an F&F letter or FnF settlement letter) is the formal document an employer issues when an employee exits the organisation — whether through resignation, termination, retirement, or redundancy — confirming the calculation and payment of all outstanding dues.
It is distinct from two other documents that often accompany it:
📄
F&F Settlement Letter (this page)
Issued by HR to the employee. Itemises every component of dues and deductions, states the net payable amount, and confirms the expected payment date.
✉️
Relieving Letter
Confirms that the employee has been relieved of duties and has no pending obligations. Required by the next employer; often delayed, which is a separate statutory obligation.
🏅
Experience Certificate
Confirms designation, tenure, and conduct. A professional document — not a legal one — but often issued alongside the F&F letter.
Important: Indian law does not mandate one F&F format
The Payment of Wages Act, Payment of Gratuity Act, and Code on Wages, 2019 mandate what must be paid and when — not the document format or the level of detail in the letter. Your HR policy determines the format. This page gives you the format that best protects the employer and gives the employee clear, auditable information.
When Should HR Issue the Full and Final Settlement Letter?
The settlement letter should be issued as close to payment as possible — ideally on the same day the net amount is transferred. Issuing the letter before payment is calculated and confirmed invites disputes over figures.
Resignation
Within 30–45 days of last working day
Most common scenario. Exit clearance should be completed within the notice period to avoid delays.
Termination (with cause)
Within 7–10 days (Payment of Wages Act § 5)
Even when termination is for cause, all accrued dues remain payable. Disqualification from statutory bonus is narrow (fraud, violence, theft).
Termination (retrenchment / redundancy)
Along with retrenchment compensation
The Industrial Relations Code, 2020 (once fully notified) requires payment at the time of retrenchment. Keep F&F and retrenchment compensation in the same settlement statement.
Retirement
On or before the last working day
Gratuity must be paid within 30 days of the date it becomes payable. Plan ahead — do not wait for the employee to request it.
Death / Permanent Disability
Gratuity within 30 days; other dues immediately
Payable to the nominee or legal heir. Gratuity is payable regardless of years of service in the case of death or disablement.
What Must the Full and Final Settlement Letter Include?
A complete F&F settlement letter has two parts: the payable components and the deductions. Both must be clearly itemised; bundling them into a single "net payable" figure without showing the working is the most common dispute trigger.
💰
Unpaid Salary
Mandatory
Payment of Wages Act, 1936 — § 5
Salary for days worked in the final month up to and including the last working day. Calculate on a per-day basis (monthly gross ÷ number of calendar days or 26 working days per your company policy).
Encashment of unused Earned Leave or Privilege Leave standing to the employee's credit. Formula: (Basic salary ÷ 26) × unused leave days. Cap on carryforward and encashment limits are governed by state S&E Act and company policy.
🎖️
Gratuity
Mandatory (if 5+ years served)
Payment of Gratuity Act, 1972 — § 4
Payable to employees who have completed 5 or more years of continuous service (courts have held 4 years and 240 days qualifies). Formula: (Last drawn basic + DA) ÷ 26 × 15 × years of service, subject to a statutory ceiling currently at ₹20 lakhs.
⚖️
Statutory Bonus
Mandatory (if eligible)
Code on Wages, 2019 — § 26, 39
Applicable to employees whose wages fall within the government-notified ceiling and who worked at least 30 days in the accounting year. Calculated at 8.33%–20% of eligible wages and payable within 8 months of the accounting year-end. Cannot be denied for resignation; disqualification is only for fraud, violence, or theft (§ 29).
🎯
Performance / Incentive Bonus
Mandatory if earned & approved
Contract of employment / Company policy
Any bonus, incentive, or variable pay earned and approved before the last working day. If accrued and approved, it forms part of F&F dues regardless of the scheduled payout date.
🧾
Expense Reimbursements
Mandatory if claim approved
Contract of employment
All approved, pending expense claims — travel, client entertainment, telephone, internet allowances — that have been approved but not yet reimbursed should be settled as part of FnF.
Permitted Deductions
Deduction
When It Is Permitted
Notice pay shortfall
Contractually permitted if the employee left without serving full notice period as stated in appointment letter
Advance salary recovery
Permissible if a salary advance was drawn and not repaid; must be documented
Tax deducted at source (TDS)
Mandatory; must be accounted for in Form 16 and reflected in the settlement statement
Provident Fund (employer + employee contribution)
PF is handled directly by EPFO; not a deduction from F&F but must be confirmed as paid up-to-date
Outstanding loans / dues
Permissible only if explicitly documented in a signed loan/advance agreement; cannot be deducted arbitrarily
HR rule: never make undocumented deductions
Under Section 7 of the Payment of Wages Act, 1936, deductions from wages are permitted only on specific authorised grounds. Any deduction not listed in Section 7 — or not backed by a signed advance/loan agreement — can be ordered reversed by the Labour Commissioner, along with compensation to the employee.
India · All States & UTs · Payment of Wages Act · Code on Wages, 2019
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Editable Full and Final Settlement Letter Template (HR to Employee)
Copy and customise the template below. Replace all [bracketed] placeholders with the employee's actual details. For a fully auto-populated Word or PDF version, use the generator above.
[COMPANY NAME]
[Company Registered Address]
[City, State, PIN]
CIN: [Company CIN]
Date: [DD Month YYYY]
Reference No.: FNF/[YEAR]/[SEQUENCE NUMBER]
To,
[Employee Full Name]
Employee ID: [EMPID]
Designation: [Designation]
Department: [Department]
Subject: Full and Final Settlement — [Employee Full Name] — Last Working Day [Date]
Dear [Employee First Name],
This letter confirms your separation from [Company Name] effective [Last Working Day] and sets out the calculation of your Full and Final Settlement dues.
─────────────────────────────────────────────
A. PAYABLE COMPONENTS
─────────────────────────────────────────────
1. Salary for [Month/Period]
Working days in period : [X] days
Daily rate (Gross ÷ days) : ₹[amount]
Salary payable : ₹[amount]
2. Leave Encashment
Earned leave balance : [X] days
Formula: (Basic ÷ 26) × days
Leave encashment payable : ₹[amount]
3. Gratuity [if applicable]
Years of service : [X years Y months]
Formula: (Basic + DA) ÷ 26 × 15 × [years]
Gratuity payable : ₹[amount]
4. Statutory Bonus (Code on Wages, 2019 — § 26)
Accounting year : FY [YYYY–YY]
Bonus @ [8.33% / X%] : ₹[amount]
5. Performance Bonus / Incentive [if applicable]
Approved vide [email/letter dated DD/MM/YYYY]
Amount : ₹[amount]
6. Expense Reimbursements [if applicable]
Claims approved as at [date]: ₹[amount]
TOTAL PAYABLE (A) ₹[TOTAL]
─────────────────────────────────────────────
B. DEDUCTIONS
─────────────────────────────────────────────
1. Notice pay shortfall ([X] days) : ₹[amount]
(Per Clause [X] of Appointment Letter dated [date])
2. TDS as per applicable slab : ₹[amount]
3. [Any other contractual deduction]: ₹[amount]
TOTAL DEDUCTIONS (B) ₹[TOTAL]
─────────────────────────────────────────────
C. NET SETTLEMENT AMOUNT (A minus B) ₹[NET AMOUNT]
─────────────────────────────────────────────
The net amount of ₹[NET AMOUNT] will be credited to your registered bank
account (A/c No. ending [XXXX]) on or before [Payment Date].
Along with this settlement, please note:
• Relieving letter : [Issued / To be issued by DD/MM/YYYY]
• Experience certificate : [Issued / To be issued by DD/MM/YYYY]
• Form 16 (TDS certificate) : Will be issued at the time of annual
Form 16 processing
Please sign and return the acknowledgement section below to confirm
your receipt and acceptance of this settlement statement.
Yours sincerely,
[Authorised Signatory Name]
[Designation — e.g. HR Manager / VP HR]
[Company Name]
[Contact email]
[Contact phone]
─────────────────────────────────────────────
EMPLOYEE ACKNOWLEDGEMENT
─────────────────────────────────────────────
I, [Employee Full Name] (Employee ID: [EMPID]), acknowledge receipt of
the Full and Final Settlement letter dated [Date] from [Company Name]
and confirm that the details set out above reflect my outstanding dues
and deductions as agreed.
Signature: ____________________ Date: ______________
Name: [Employee Full Name]
Template version: v2.1 — June 2026. Reviewed by the OfficeDraft Legal Team against the Payment of Wages Act, 1936; Payment of Gratuity Act, 1972; Code on Wages, 2019; and applicable state Shops & Establishments Acts.
Complete Sample Full and Final Settlement Letter (HR to Employee)
A filled example showing how a realistic settlement looks with actual figures. All names and numbers are illustrative.
NEXUS TECHNOLOGIES PRIVATE LIMITED
Building 7, Prestige Tech Park, Outer Ring Road
Bengaluru, Karnataka — 560 103
CIN: U72900KA2018PTC123456
Date: 26 June 2026
Reference No.: FNF/2026/047
To,
Ms. Priya Sharma
Employee ID: NTP-1042
Senior Software Engineer, Platform Team
Subject: Full and Final Settlement — Ms. Priya Sharma — Last Working Day 31 May 2026
Dear Priya,
This letter confirms your separation from Nexus Technologies Private
Limited effective 31 May 2026 and sets out your Full and Final
Settlement dues.
─────────────────────────────────────────────
A. PAYABLE COMPONENTS
─────────────────────────────────────────────
1. Salary for May 2026 (31 working days)
Gross monthly CTC : ₹1,20,000
Daily rate (₹1,20,000 ÷ 31): ₹3,871
Days worked : 31
Salary payable : ₹1,20,000
2. Leave Encashment
Earned leave balance : 18 days
Basic salary (monthly) : ₹60,000
Formula: (₹60,000 ÷ 26) × 18 days
Leave encashment : ₹41,538
3. Gratuity (Payment of Gratuity Act, 1972)
Date of joining : 15 April 2020
Last working day : 31 May 2026
Years of service : 6 years 1 month (≥ 5 years)
Basic + DA (monthly) : ₹60,000
Formula: (₹60,000 ÷ 26) × 15 × 6 years
Gratuity payable : ₹2,07,692
4. Statutory Bonus (Code on Wages, 2019 — § 26)
Accounting year FY 2025–26
Days worked (FY 2025–26) : 365 (>30 days — eligible)
Bonus @ 8.33% : ₹10,000
5. Performance Bonus (FY 2025–26 appraisal — Rating: Exceeds)
Approved by People Ops on 10 May 2026
Bonus @ 15% of Annual Basic
(₹7,20,000 × 15%) : ₹1,08,000
6. Expense Reimbursements
Approved claims (Apr–May 2026): ₹4,500
TOTAL PAYABLE (A) ₹4,91,730
─────────────────────────────────────────────
B. DEDUCTIONS
─────────────────────────────────────────────
1. Notice pay shortfall
Notice period per contract: 60 days
Notice served : 60 days
Shortfall : Nil ₹0
2. TDS (per applicable slab estimate) ₹18,500
TOTAL DEDUCTIONS (B) ₹18,500
─────────────────────────────────────────────
C. NET SETTLEMENT AMOUNT ₹4,73,230
─────────────────────────────────────────────
The net amount of ₹4,73,230 will be credited to your registered bank
account (SBI, A/c No. ending 7821) on or before 10 July 2026.
• Relieving letter : Issued alongside this letter
• Experience certificate : Issued alongside this letter
• Form 16 : Will be issued in July 2026
Yours sincerely,
Rohit Verma
HR Manager, Nexus Technologies Private Limited
hr@nexustech.in | +91 98765 43210
─────────────────────────────────────────────
EMPLOYEE ACKNOWLEDGEMENT
─────────────────────────────────────────────
I, Priya Sharma (Employee ID: NTP-1042), acknowledge receipt of this
Full and Final Settlement letter dated 26 June 2026 and confirm the
details above.
Signature: ____________________ Date: ______________
All names, CINs, and figures are illustrative only. Use the generator above for your actual settlement.
Email Version of the F&F Settlement Letter
Use the email version to transmit the settlement statement digitally. The formal signed letter should always be attached as a PDF; the email body is for context and to create a traceable digital record.
To: [employee.personal@email.com]
CC: [payroll@company.com], [manager@company.com]
Subject: Full and Final Settlement — [Employee Name] — [Employee ID] — Action Required
Dear [Employee First Name],
Please find attached your Full and Final Settlement statement for your
tenure at [Company Name], effective your last working day of [Date].
The statement covers:
• Salary dues: ₹[amount]
• Leave encashment: ₹[amount]
• Gratuity: ₹[amount]
• Bonus (statutory + performance): ₹[amount]
• Reimbursements: ₹[amount]
• Less: Deductions: ₹[amount]
NET AMOUNT PAYABLE: ₹[NET AMOUNT]
This amount will be credited to your registered bank account
(A/c No. ending [XXXX]) on or before [Date].
ACTION REQUIRED:
Please sign and return the acknowledgement section in the attached PDF
by replying to this email with the signed page, or by courier to
[Company Address].
Your relieving letter and experience certificate are also attached.
Form 16 will be issued during annual TDS processing.
Please contact [HR contact name] at [email] or [phone] for any queries
on this settlement.
Regards,
[HR Name]
[Designation]
[Company Name]
[Contact details]
Attachments:
1. FnF_Settlement_[EmployeeName]_[Date].pdf
2. Relieving_Letter_[EmployeeName].pdf
3. Experience_Certificate_[EmployeeName].pdf
Pro tip: always send to the personal email address
Send the F&F settlement to the employee's personal email, not their company email — corporate email access is typically revoked on the last working day or shortly after. CC the payroll team and reporting manager for documentation.
HR Pre-Issue Checklist — Before Issuing the F&F Letter
Run through every item on this checklist before the F&F letter is issued. Each item either prevents a dispute or accelerates resolution if one arises.
Last working day confirmed in writing (resignation acceptance / termination letter)
All exit clearances collected (IT, Admin, Finance, Reporting Manager)
Unpaid salary calculated for exact days worked (last wage period)
Leave balance verified from HRMS / attendance system
Leave encashment calculated using correct formula (Basic ÷ 26 × leave days)
Gratuity eligibility checked — confirmed 5 years / 4 years 240 days served or not
Gratuity calculated and Form I/II filed with employer copy retained
Statutory bonus eligibility checked under Code on Wages, 2019 — § 26
Performance/contractual bonus — any approved and accrued amount identified
All approved expense claims settled or included in F&F
Notice pay shortfall identified and contractual basis confirmed before deducting
All deductions documented with clear labels and basis
Net payable amount computed and verified by Finance / Payroll
Letter drafted on company letterhead, signed by authorised HR representative
Employee acknowledgement format included or attached
Relieving letter, experience certificate, and Form 16 readiness confirmed
Payment mode confirmed (direct bank transfer to employee's registered account)
This checklist is designed for HR, payroll, and operations teams. Print it for each exit case and file with the employee's separation record.
Common HR Mistakes When Issuing a Full and Final Settlement Letter
These mistakes account for the majority of employee Labour complaints and can expose the employer to penalties under the Payment of Wages Act and the Code on Wages, 2019.
🚫
Delaying issuance beyond 45 days
Crossing 45 days from the last working day without a clear reason creates liability under the Payment of Wages Act. Labour Commissioners have consistently held that delays beyond 45 days are not defensible.
📋
Missing mandatory components
Omitting gratuity when it is legally payable, or excluding earned leave encashment, are the two most common F&F errors that lead to Labour Department complaints.
❌
Withholding F&F for pending handover
Under the Payment of Wages Act, wages cannot be withheld because exit formalities are incomplete. Handover failure is a separate legal matter — it cannot be used to hold up F&F payment.
📝
Unlabelled or unexplained deductions
Every deduction must have a clear label and contractual basis. An unexplained deduction from F&F is an unlawful deduction under the Payment of Wages Act and can be challenged before the Labour Commissioner.
📧
Sending only an email with no formal letter
An informal email breakdown of dues is not a settlement letter. A formal signed letter on company letterhead is required for the employee's records, Form 16 processing, and any future audit trail.
⏳
Using old statutory citations
The Payment of Bonus Act, 1965 is repealed. As of November 2025, bonus law is governed by the Code on Wages, 2019. F&F letters still citing repealed legislation create credibility and legal risk.
Employer Responsibilities Under Indian Law
These are the statutory obligations every employer must meet when issuing an F&F settlement. The consequences column reflects what the Labour Commissioner or competent authority can award.
Obligation
Governing Law
Consequence of Breach
Pay wages within the statutory window
Payment of Wages Act, 1936 — § 5
Labour Commissioner can direct recovery plus compensation up to 10× delayed amount (§ 15)
Pay gratuity within 30 days of becoming payable
Payment of Gratuity Act, 1972 — § 7
Simple interest at 10% per annum for delayed payment; criminal liability for wilful refusal
Pay statutory bonus within 8 months of accounting year end
Code on Wages, 2019 — § 39
Claims authority can award bonus + compensation up to 10× (Code on Wages claims mechanism)
No unlawful deductions from wages
Payment of Wages Act, 1936 — § 7
Deduction can be ordered reversed; employer may face penalty
Cannot void statutory entitlements by agreement
Code on Wages, 2019 — § 60
Agreement or waiver clause in F&F letter is void for statutory dues
Issue relieving letter and experience certificate
State S&E Acts (Karnataka, Maharashtra, Telangana, etc.)
Withholding these documents is actionable under respective state S&E Acts
Employer tip: keep your own F&F file
Maintain a separate F&F settlement file for each employee containing the signed acknowledgement, calculation sheet, bank transfer proof, and copies of the relieving letter and experience certificate. This is your evidence bundle if a Labour complaint is filed — which must typically be responded to within 30 days.
The acknowledgement section is HR's confirmation that the employee received and reviewed the settlement statement. It is not a waiver of statutory rights — under Section 60 of the Code on Wages, 2019, any agreement under which an employee gives up a statutory wage or bonus entitlement is void.
✅
What acknowledgement confirms
→Employee received the settlement statement
→Employee reviewed the calculation
→Employee confirms bank account for payment is correct
→Documents received (relieving letter, experience certificate)
🚫
What acknowledgement cannot do
→Waive unpaid statutory bonus under the Code on Wages
→Override a miscalculated gratuity entitlement
→Bar a Labour Commissioner complaint for underpayment
→Replace an accurate, honest settlement calculation
HR best practice
If an employee disputes the settlement amount before signing, do not delay payment of the undisputed portion while the dispute is resolved. Holding up the entire settlement over a partial dispute gives the employee grounds for a Labour complaint on the undisputed amounts — and creates unnecessary legal risk for the employer.
Frequently Asked Questions — Full and Final Settlement Letter from HR to Employee
Is there a legally mandated format for a Full and Final Settlement letter in India?▾
No. Indian law does not prescribe one mandatory format for an F&F settlement letter. The legal obligations are about what must be paid and when — not about the document format. The Payment of Wages Act, 1936 governs payment timing. The Payment of Gratuity Act, 1972 governs gratuity. The Code on Wages, 2019 governs statutory bonus. Your HR policy determines the format.
Within how many days must HR issue the Full and Final Settlement?▾
Under Section 5 of the Payment of Wages Act, wages must be paid within 7–10 days of the end of the wage period. State S&E Acts (Maharashtra, Karnataka, Telangana) often require settlement within 2–3 working days of the last working day. The Code on Wages, 2019 introduces a 2-working-day requirement once state rules are fully notified. The industry standard accepted by Labour Commissioners is 30–45 days; beyond 45 days, delay becomes indefensible.
What components must be included in an F&F settlement letter from HR?▾
A complete F&F letter must include: unpaid salary for the last working period; leave encashment for unused earned leave; gratuity if 5+ years of service; statutory bonus under the Code on Wages, 2019 if eligible; contractual performance/incentive bonus if earned and approved; approved expense reimbursements; and all deductions clearly itemised — notice pay shortfall, TDS, etc. — with the net amount payable and the expected payment date.
Can HR deduct notice pay from the Full and Final Settlement?▾
Yes, if the employee left without serving their full notice period as required by the appointment letter or employment contract, and only if the right to deduct is explicitly stated in writing. The deduction must be clearly itemised in the F&F letter. Undocumented notice pay deductions can be challenged as unlawful deductions under the Payment of Wages Act.
Does signing the F&F acknowledgement waive the employee's right to claim additional dues?▾
For statutory entitlements — wages, gratuity, statutory bonus — the acknowledgement cannot be used as a waiver. Section 60 of the Code on Wages, 2019 voids any agreement under which an employee gives up a statutory entitlement. For purely contractual dues, a "full and final satisfaction" clause may carry weight in civil proceedings, which is why HR should ensure the settlement is fair and complete before requesting acknowledgement.
What happens if HR issues an incorrect Full and Final Settlement letter?▾
An incorrect letter — omitting gratuity, miscalculating leave encashment, or making unlawful deductions — exposes the employer to a free Labour Commissioner complaint, which can award the unpaid amount plus compensation up to 10× (Payment of Wages Act § 15) and simple interest at 10% per annum for delayed gratuity. The employee can dispute the settlement even after signing an acknowledgement where the error relates to a statutory right.
Can HR withhold the Full and Final Settlement if an employee did not complete handover?▾
No. Under the Payment of Wages Act, 1936, wages cannot be withheld because exit formalities or handover are incomplete. Handover failure is a separate legal matter and must be pursued separately. The two obligations are legally distinct — withholding F&F dues for an incomplete handover is an unlawful deduction and creates immediate liability.
About This Guide
🔄
Template version v2.1 — June 2026
Updated to reflect the Code on Wages, 2019 (in force 21 November 2025, Central Rules notified 8 May 2026), which repeals and replaces the Payment of Bonus Act, 1965. All bonus citations in this guide use the Code on Wages.
📐
Methodology
Template and guidance drafted against primary government sources (IndiaCode, Ministry of Labour notifications) and reviewed for practical accuracy by the OfficeDraft Legal Team with reference to HR practitioner input across IT, BPO, pharma, and manufacturing sectors.
⚖️
Educational only
This content is for information and education purposes and does not constitute legal advice. For complex exits involving ESOP vesting disputes, senior executive separation, or contested terminations, consult a qualified employment lawyer.
This page is provided for educational and informational purposes only and does not constitute legal advice. The content summarises Indian employment and wage law as at June 2026, including the Payment of Wages Act, 1936; Payment of Gratuity Act, 1972; Code on Wages, 2019 (in force 21 November 2025, Central Rules notified 8 May 2026); Industrial Relations Code, 2020; Industrial Disputes Act, 1947; and applicable state Shops and Establishments Acts. It may not reflect subsequent legislative, regulatory, or judicial changes.
Template version: v2.1. Reviewed by the OfficeDraft Legal Team — last updated June 2026. OfficeDraft is not a law firm and does not provide regulated legal services. For complex exits, senior executive separations, or contested terminations, consult a qualified employment lawyer or the Ministry of Labour & Employment, India.
Payment of Wages Act · Payment of Gratuity Act · Code on Wages, 2019 · All 36 States & UTs
Generate Your Full and Final Settlement Letter from HR — ₹49 Only
Issue a legally cited, correctly calculated F&F settlement letter in under 3 minutes. Auto-applies the right state law, calculates salary, gratuity, leave encashment, and bonus, and includes the employee acknowledgement format. One less dispute to handle.