NEW DELHI: Change is the only constant, which precisely means that old employees leave for better opportunities and new ones join. One of the major parts of the process while leaving a company is a full and final settlement or F&F – the process involves clearing dues for the employee’s service till the last working day.
The F&F consists of clearances from various departments such as admin, office library, IT, finance, HR, and of course the department, to which the employee belongs to. The employee has to return all the company assets – laptop, mobile, computer, books, or any other thing - in their possession. The company may deduct money for any damage in the F&F settlement.
The F&F process is mainly a financial settlement such as unpaid salary (including annual benefits - leave travel allowance) and arrears, unpaid bonus, payment for non-availed leaves or earned leave, and Gratuity if one completes four years and 240 days, and pension.
Gratuity and earned leave are exempted from tax deducted at source (TDS). Other deductions in the process include profession tax, provident fund, income tax and compensation for the unserved notice period. Under Section 192 of the Income Tax Act, all other payments attract TDS, say experts.
Time taken for settlement
Going strictly by the rules, the final settlement should take place on an employee’s last working day at the organization, they say. However, as clearances take time, the normal processing time is 30-45 days after an employee leaves a company. For gratuity, it should be paid within 30 days after leaving the company, while bonuses must be paid within the specified accounting year.
Laws pertaining to the payment and wages say that the salary of a particular month should be paid by the 10th of the next month. However, when an employee resigns from an organisation, the salary for the respective month is held back and paid only at the time of full & final settlement. Apart from the salary held back, the employee also gets annual components like leave travel allowance (LTA) or other accrued dues. These annual benefits are paid on a pro-rata basis and are calculated up to the employee’s last working day. Also, an important part of the F&F calculation is left encashment. Leaves policy varies from company to company, hence the encashment calculation of this component could be different.
While tendering resignation one should ensure he has enough money to meet expenses in the interim period between the day one resigns and when he is going to get the next salary, says Jitendra Solanki, a SEBI-registered investment expert based in Noida, “As a standard rule, one should have at least 6 months’ salary.”
Tax deductions, EPF & others
Employee provident fund: The EPF/pension should be transferred to the new employer or paid to the employee. The employee will receive the fund balance retirement. Gratuity: An employee is entitled to gratuity when they serve a company for four years and 10 months or more. After completion of this period, if an employee resigns or is being terminated, becomes entitled to receive gratuity within 30 days. In case of any delay in payment during F&F settlement beyond 30 days, interest is payable to the employee.
Tax deduction: Any tax liability arising on the F&F amount is deducted from the amount payable to the employee. According to Razorpay, if an employer doesn’t process the F&F settlement on time, the employee can take legal action and demand payment of a penalty for the delay. The employee can also lodge a police complaint if the employer fraudulently avoids paying the F&F amount. Human resource practitioners say an employee should appraise their boss in advance so that the management will have time to complete pending projects and hire a replacement.
Rimjhim Hada, founder of Aachho says however toxic a place may be, one should leave a company on a good note and rather than quitting immediately the employee should serve a notice period peacefully and can offer to assist the transition.
Quick information on the final settlement