The 2-working-day clock
- Fri 25 Sep
- Last day
- Sat 26 Sep
- Weekly off
- Sun 27 Sep
- Weekly off
- Mon 28 Sep
- Working day 1
- Tue 29 Sep
- Working day 2 · due
Full and final settlement · guide · updated 30 Sep 2026, checked by the LekhaHR team
The wages in an F&F are due within 2 working days of the last day.
That is the Code on Wages, 2019, s.17(2), in force since 21 Nov 2025, read from the day service ends, and it applies whether someone resigns or is removed, dismissed or retrenched. Gratuity and the PF balance run on their own clocks. Clearances can continue, but they do not hold the wages.
because the last payment someone gets from you is the one they remember, and now it has a legal date.
Design preview · sample data · Paiteq Technologies
2 working days · Code on Wages, 2019, s.17(2) · in force 21 Nov 2025 · reviewed 30 Sep 2026
No. 01
The time limit
because a 45-day F&F cycle was allowed for most resignations before 21 Nov 2025, and now it is not.
What is the time limit for full and final settlement in India?
Wages due on an exit must be paid within 2 working days of the last day, under the Code on Wages, 2019, s.17(2), in force since 21 Nov 2025. It covers resignation, removal, dismissal and retrenchment. Count your establishment's working days from the day after the last day: weekly offs, and holidays on which you are closed, do not count.
- 01Salary for the days worked
- within 2 working days
because it is wages due on the exit, and Code on Wages, 2019, s.17(2) requires them within 2 working days of the last day, whether the person resigned or was removed, dismissed or retrenched. A company policy of 30 or 45 days does not override it.
- 02Leave encashment
- within 2 working days
because for the workers the OSH Code covers, all unused annual leave is encashed on exit, and the Code on Wages does not list leave encashment among its exclusions from wages. Treat it as due with the final wages.
- 03Deductions from those wages
- within 50%
because only the kinds Code on Wages, 2019, s.18 lists may be taken, all together within 50% of the wages, and a deduction for damage or loss needs the employee to be heard first.
- 04A due day that is a bank holiday
- pay the working day before
because the count is of your establishment's working days. If the due day is a bank holiday, pay the working day before.
No. 02
Inside and outside
because most F&F disputes are about which money was due when.
What does the 2-working-day rule cover, and what runs on its own clock?
Leave encashment is paid with the wages. Approved claims and recoveries are best settled in the same statement, so everything owed closes at once. Gratuity, the PF balance and the year's TDS certificate each have their own timeline, so they are not late when they arrive after the wages.
Runs on its own clock
- Gratuity
- within 30 days
because it is due under the Code on Social Security, 2020 (s.53) after 5 years of continuous service, in an establishment with 10 or more employees, and is paid within 30 days of becoming payable, with interest if late. The 5 years are waived on death or disablement; a fixed-term employee qualifies pro rata after one year. For exits on or after 21 Nov 2025, gratuity for all service is worked on last-drawn Code wages (MoLE FAQ, 16 Mar 2026, reply 17).
- PF balance
- with the PF office
because the employer marks the exit date on the EPFO portal in the month of exit; until it does, the employee cannot transfer or claim. The member then transfers the balance with their UAN, or withdraws it: since 1 Jul 2026 a full withdrawal after leaving waits 12 months, except on retirement after 55, permanent incapacity or migration abroad.
- Salary TDS certificate, Form 130 (earlier Form 16)
- after the tax year
because Form 130 (earlier Form 16) (earlier Form 16) covers the tax year's salary and tax deducted, so a leaver gets it after the year closes, not with the settlement.
Settle with the wages
- Approved expense claims
- pay them with the wages
because reimbursements are not wages for PF or ESI, but they are money owed. Paying them in the settlement closes the account in one statement.
- Recoveries (advances, unreturned items)
- set off within the limit
because a recovery comes out of the settlement only as s.18 allows, within the 50% limit, and never as a reason to delay the rest.
- Notice shortfall
- as the letter states
because the balance is paid in lieu of notice as the appointment letter provides, and setting it off against the F&F needs the employee's written agreement: it is not an s.18 deduction.
Gratuity · Code on Social Security, 2020, s.53 · 5 years of continuous service · Annual leave encashed on exit · OSH Code, 2020, s.32 · reviewed 30 Sep 2026
No. 03
Calculation
because every line of a settlement should survive the question “why this number?”
How is full and final settlement calculated?
Start with salary for the days worked in the last month, where any loss of pay is limited to the share of wages that days absent bear to the days required to work (s.20). Add leave encashment and other dues, take off PF, ESI, PT and TDS, then any lawful recovery. Gratuity, if due, has its own line.
Sanjay Mishra · full and final
- Salary, 1–25 Sep
- ₹15,000
because 25 of 30 days at ₹18,000 a month
- Earned leave, 6 days
- ₹2,400
because Code wages ₹12,000 ÷ 30 × 6 days left in the balance
- EPF, 12%
- −₹1,200
because 12% of ₹10,000 PF wages for the 25 salary days; not on leave encashment
- ESI, 0.75%
- −₹75
because 0.75% of ₹10,000 Code wages for the salary days, rounded up; not on leave encashment
- Professional tax, Karnataka
- ₹0
because his monthly gross is below ₹25,000
- Net to pay
- ₹16,125
- Gratuity
- not due
because he joined on 6 Mar 2023 and served 3 years 6 months, short of the 5 years of continuous service the Code on Social Security asks for.
- PF balance
- with the PF office
because he transfers it with his UAN or withdraws it under EPFO's rules once the exit date is marked
- Recoveries
- ₹0
because his ID card and drawer key came back the next working day; an unreturned item would have been a recovery, not a hold
Design preview · sample data · Paiteq Technologies
because the Code "wages" for leave encashment (₹12,000) are basic and special allowance; HRA, conveyance and the employer's PF are under half of total remuneration, so nothing is added back.
Gratuity formula for when it is due: Last drawn wages × 15 × completed years ÷ 26 · Code on Social Security, 2020, s.53
No. 04
The format
because a settlement nobody signed for is a settlement somebody will reopen.
What does a full and final settlement format include?
Four parts: who is leaving and when, what they earn in the final settlement, what is deducted or recovered, and the net with signatures. Use the blank format below as your F&F statement. Print it, or save it as a PDF from the print dialog, and keep a signed copy on the employee's file.
Full and final settlement statement
Establishment name · address · statement date
| Item | Amount / detail | Note |
|---|---|---|
| Name, employee ID, designation, department | as on the record | |
| Date of joining · last working day | continuous service decides gratuity | |
| Reason for exit | resignation, removal, dismissal, retrenchment, retirement, death | |
| Due date for wages | 2 working days after the last day |
| Item | Amount / detail | Note |
|---|---|---|
| Salary for days worked in the last month | paid days ÷ days in the month × monthly pay | |
| Leave encashment | unused annual leave × the daily rate your policy uses, never below the rate the OSH Code's rules set for workers it covers | |
| Approved expense claims | reimbursements, not wages for PF or ESI | |
| Other dues (bonus, arrears) | each with its basis |
| Item | Amount / detail | Note |
|---|---|---|
| EPF, employee 12% | on PF wages for the salary days only | |
| ESI, employee 0.75% | if covered; on Code wages for the salary days | |
| Professional tax · TDS | by state slab · on projected income | |
| Recoveries (advances, unreturned items) | s.18 only, heard first, all within 50% | |
| Notice shortfall | as the appointment letter provides; set off only with the employee's written agreement (not an s.18 deduction) |
| Item | Amount / detail | Note |
|---|---|---|
| Net payable (B − C) | in figures and in words | |
| Gratuity, if due (separate line) | own timeline under the Code on Social Security | |
| Prepared by · approved by · received by | with dates |
Wages due on exit are paid within 2 working days of the last day (Code on Wages, 2019, s.17(2), in force 21 Nov 2025). Gratuity and the PF balance follow their own timelines.
No. 05
Holding back
because a missing ID card is, at most, a recovery.
Can an employer hold back F&F for an unreturned laptop?
Not the wages. An item that isn't returned can become a recovery, but only as the Code on Wages allows (s.18), after the employee has been heard, and with all deductions in the period within 50% of the wages. The wages due and the relieving letter go ahead on their dates; the recovery is a line, not a hold.
Deductions · Code on Wages, 2019, s.18 (deductions which may be made from wages) · in force 21 Nov 2025 · reviewed 30 Sep 2026
No. 06
Questions
because the questions arrive on the last day.
Questions about full and final settlement
What is full and final settlement?
Full and final settlement (F&F, sometimes written FnF settlement) is the last payment to someone who leaves: salary for the days worked, leave encashment and approved claims, less deductions and recoveries the law allows. The wages in it are due within 2 working days of the last day, under the Code on Wages, in force since 21 Nov 2025.
What is the time limit for full and final settlement in India?
Wages due on an exit must be paid within 2 working days of the last day, under the Code on Wages, 2019, s.17(2), in force since 21 Nov 2025. That applies to a resignation, removal, dismissal or retrenchment. Gratuity and the PF balance follow their own timelines and are not part of the 2-day rule.
Why do companies take 30 to 45 days for F&F?
Because the old rule allowed it. The Payment of Wages Act's 2-day rule covered only terminations, and only wages up to ₹24,000 a month, so resignations often ran on a 30 to 45-day cycle. Since 21 Nov 2025 the Code on Wages covers resignations and every employee, and a company policy cannot override it. Clearances can still run; an open item becomes a recovery.
Can an employer hold the F&F until the laptop is returned?
Not the wages. An item that isn't returned can become a recovery, but only as the Code on Wages allows (s.18), after the employee has been heard, and with all deductions together within 50% of the wages. The wages due and the relieving letter should go ahead on their dates.
Is gratuity part of full and final settlement?
It sits beside the F&F on its own line and timeline: paid within 30 days of becoming payable, with interest if late, not within the 2-working-day rule for wages. It is due after 5 years of continuous service under the Code on Social Security, 2020, s.53, waived on death or disablement; a fixed-term employee qualifies pro rata after one year.
How do I calculate full and final settlement?
Add salary for the days worked in the last month, leave encashment for unused annual leave, approved expense claims and any other dues. Take off PF, ESI, professional tax and TDS on the salary, then recoveries the law allows. Gratuity, if due, goes on its own line. The worked example on this page shows each step.
Is leave encashment part of the F&F?
Yes. For the workers the OSH Code covers, all unused annual leave is encashed on exit; for managers, and supervisors earning over ₹18,000 a month, the contract or policy decides. Treat it as due with the final wages, within 2 working days: it is not among the Code on Wages' exclusions from wages.
What happens to PF after resignation?
The employer marks the exit date on the EPFO portal in the month of exit. The balance stays with EPFO: the member transfers it with the same UAN or withdraws it; since 1 Jul 2026 a full withdrawal after leaving waits 12 months, except on retirement after 55, permanent incapacity or migration abroad. PF is not deducted on leave encashment.
No. 07
Sources
because a rule you cannot trace is a rumour with a number in it.
Where each rule comes from
Each rule on this page cites the Code section it rests on and the date it took effect. State rules can add detail, so check the state where the employee worked.
- Code on Wages, 2019, s.17(2) (time limit for wages on exit) and s.18 (deductions)primary
- Code on Social Security, 2020, s.53 (gratuity)primary
- Occupational Safety, Health and Working Conditions Code, 2020, s.32 (annual leave, encashment on exit)primary
- Payment of Wages Act, 1936, s.5(2) (history: the 2-day rule before the Codes)secondary
- EPF Scheme, 2026 (G.S.R. 525(E)), as reported by KPMGsecondary
- Central Rules under the four Labour Codesprimary
Checked by the LekhaHR team · reviewed 30 Sep 2026 · next review by 31 Dec 2026. This guide explains the rule; it is not legal advice for your establishment.
Invitation
By invitation.
LekhaHR is HR and payroll software for small teams. It freezes the facts on the last day and works out the F&F with a reason on every line, so it can be approved and paid in time.