Running a full and final settlement: a step-by-step guide for HR

An employee's exit is the last experience they have of your company, and often the one they remember. A late settlement, a missing relieving letter or a deduction nobody explained can undo years of goodwill and, in some cases, lead to a formal complaint. Yet in many growing Indian companies the exit process still lives in emails, spreadsheets and the memory of one HR executive.

This guide walks through a standard exit from start to finish: recording the resignation, working out the notice period, agreeing the last working day, running clearance, holding the exit interview and preparing the full and final (F&F) settlement. It closes with the letters that follow. Policies differ between companies and states, so treat this as a framework and confirm the specifics with your CA or legal adviser.

Step 1: Record the resignation properly

The exit starts the day an employee resigns, so that date matters. It drives the notice period, the standard last working day and, later, any recovery for shortfall. Record three things at the outset:

• The resignation date: the day the resignation was submitted, not the day HR got round to looking at it.
• A reason from a fixed list (better role, compensation, relocation, higher studies, personal or health reasons, relationship with manager, and so on), plus free-text comments. A fixed list lets you see patterns across the year.
• The last working day the employee is asking for, which may be earlier than the notice period allows.

Employees should be able to submit this themselves. Where someone resigns by email or in person, HR should record it on their behalf so the trail is complete.

Step 2: Work out the notice period and approvals

Notice periods usually depend on the type of employment, and they should be written into your appointment letters and policy. A common pattern looks like this (yours may differ):

Resignation date plus notice gives the standard last working day. The resignation then goes through an approval chain, typically the reporting manager first and HR second. Each approver may propose a different last working day, or record that the employee has agreed to stay after a conversation. A retention attempt should be recorded with a note rather than left as an informal chat, so that everyone knows the resignation is closed.

In Techno Team Via, the admin sets the approval chain for resignations and the notice period for each employee type, so the standard last working day is calculated the moment a resignation is recorded.

Step 3: Agree the last working day: buyout or waiver

When the final approver accepts the resignation, they fix the last working day. If it falls before the standard last working day, there is a shortfall, and you have two choices:

• Notice buyout: the employee (or sometimes the new employer) pays for the shortfall. In practice this is usually recovered from the F&F settlement.
• Waiver: the company agrees to release the employee early without recovery, often because handover is already complete or the role is being restructured.

Write the decision down at this stage. Disputes over buyout amounts nearly always come from a verbal "we'll sort it out later". An acceptance of resignation letter stating the last working day, and whether any shortfall will be recovered, removes the ambiguity.

Step 4: Run the clearance checklist

Clearance is where exits stall. Each department assumes another has already checked, and the employee leaves with a laptop still on their name. The fix is simple: every item has a named owner and a clear definition of done.

Two rules make the checklist work. First, an item should not be marked done while the asset register still shows something assigned to the employee. Second, if an item does not apply (a remote employee with no access card, say), it should be marked "not needed" with a short note, not quietly skipped.

Techno Team Via opens this checklist automatically when a resignation is accepted, routes each item to its owner, and blocks the assets item while anything is still assigned.

Step 5: Exit interview and rehire eligibility

The exit interview is your best source of honest feedback, but only if it is consistent. Use the same questions for everyone: overall experience, relationship with the manager, growth opportunities, compensation, workload, and whether they would recommend the company. Ratings plus a few open questions work well. Keep the answers confidential to HR; employees speak more freely when they know their manager will not read them.

Once clearance is complete, HR should record rehire eligibility: yes or no, with a note required for a no. This takes thirty seconds and saves a lot of guesswork when the same person applies again in two years.

Step 6: Prepare the full and final statement

The F&F statement brings together everything the company owes the employee and everything the employee owes the company. Prepare it only after clearance is complete, because advances, assets and claims all feed into it.

Earnings

• Salary for the final month: many companies pay this through the normal payroll run and simply note it on the statement, so it is not counted twice.
• Leave encashment: typically for leave types that carry forward (earned or privileged leave). Casual and sick leave usually lapse and are not encashed. Check your policy.
• Gratuity, where the employee is eligible (see below).
• Other dues: pending incentives, bonus, approved reimbursements.

Deductions

• Notice shortfall recovery, if a buyout was agreed.
• Outstanding advances or loans.
• Unreturned assets, where your policy allows recovery.
• Tax deducted as applicable.

For leave encashment and notice recovery you need a daily rate. A common convention is monthly gross ÷ 30; some companies use basic pay instead of gross, or divide by 26 working days. Policies differ, so use whatever your appointment letters and policy say, and apply it the same way for everyone.

Gratuity under the Payment of Gratuity Act

Under the Payment of Gratuity Act, 1972, an employee is generally eligible after five years of continuous service. The usual formula for employers covered by the Act is:

Gratuity = 15/26 × last drawn monthly basic (plus DA) × completed years of service

Six months or more in the final year is generally counted as a full year. The tax-exempt limit, which is also the statutory ceiling, is ₹20 lakh. There are exceptions and court rulings on eligibility, so confirm edge cases with your adviser.

A worked example

Illustration only. The figures below are invented to show the arithmetic.

An employee with 6 years and 7 months of service resigns. Monthly gross is ₹90,000, of which basic is 50% (₹45,000). Their notice period is 60 days; the last working day was agreed 15 days early with a buyout. They have 12 days of earned leave left and a ₹10,000 travel advance outstanding.

The final month's salary is paid through payroll and noted on the statement rather than added here. Tax treatment of each line should be checked with your CA.

Techno IQ prepares this statement from the employee's records: it works out leave encashment, notice buyout and gratuity, lets HR add other earnings and deductions, and recalculates if anything changes.

Step 7: Finance approval, payment and letters

HR prepares the statement; Finance checks and approves it. That separation matters. Finance either approves or returns it with a comment, then records the payment with a date and reference. If the net is negative (the employee owes the company), Finance records the recovery instead. The employee should receive a copy of the approved statement, ideally as a PDF they can keep.

Only then should the relieving letter and experience letter (and a no-objection certificate, if you issue one) go out. Issuing letters before the settlement is approved removes your leverage to recover dues and, more often, creates confusion about what was agreed. Each letter should carry the correct last working day and be signed by the authorised signatory.

In Techno Team Via, the relieving, experience and NOC letters are generated from the exit record, go through document approval and are e-signed by the signatory; they wait until the F&F statement is approved.

Bringing it together

A good exit process is not complicated. It is a series of small, recorded decisions: the resignation date, the notice period, the last working day, each clearance item, the settlement lines and the letters. Each needs an owner. When those decisions live in one system rather than in inboxes, the employee leaves on time with what they are owed, and you keep a clear record if questions come up later. Rules on gratuity, leave encashment and timelines vary, so review your policy with your CA or legal adviser at least once a year.

To see resignations, clearance and the full and final statement working end to end, book a demo of Techno Team Via and Techno IQ.