Full and final settlement letter template
Copy the text below and replace everything in square brackets with your company details.
[Company Name]
[Office Address]
[City], [State] [PIN Code]
Date: [Date]
Ref: [Company Code]/HR/FNF/[Year]/[Number]
To
[Employee Name]
Former [Designation], [Department]
Employee ID: [Employee ID]
[Residential Address]
Personal email: [Personal Email]
Subject: Full and final settlement of dues
Dear [Employee Name],
Your employment with [Company Name] ended on [Last Working Day] following [your resignation dated Date / the completion of your fixed term / reason as per exit record]. Your date of joining was [Date of Joining], and your completed service is [Number] years and [Number] months. Your dues have been settled as follows:
A. Earnings
- Salary for [Number] days of [Month and Year]: ₹[Amount]
- Leave encashment for [Number] days of earned leave: ₹[Amount]
- Statutory bonus or other bonus due for [Period]: ₹[Amount]
- Gratuity for [Number] completed years at 15 days' wages per year on last drawn wages of ₹[Amount]: ₹[Amount, or Not applicable, service below eligibility]
- Reimbursements approved: ₹[Amount]
- Total earnings: ₹[Amount]
B. Deductions
- Employee PF on wages for the final month: ₹[Amount]
- ESI and professional tax, as applicable: ₹[Amount]
- Income tax deducted at source: ₹[Amount]
- Recovery of outstanding salary advance, as authorised by you: ₹[Amount]
- Notice period shortfall of [Number] days, as per your appointment letter: ₹[Amount, or Waived]
- Total deductions: ₹[Amount]
Net amount payable: ₹[Net Amount] (Rupees [Amount in Words] only). [Wages for the final month were credited on Date, within two working days of your last working day.] The balance has been transferred to your account no. [Account Number] with [Bank Name] on [Payment Date], reference [Transaction Reference].
Your PF account under UAN [UAN] can be transferred to your new employer or withdrawn as per EPFO rules. Your Form 16 for the financial year will be issued after the year closes, and your payslip for the final month is enclosed. If you have any question about this statement, please write to [HR or Payroll Email] within [Number] days.
Yours sincerely,
For [Company Name]
[Signatory Name]
[Signatory Designation]
Enclosures: Final month payslip, settlement computation sheet
Receipt by employee
I have received the settlement statement and the payment of ₹[Net Amount] as detailed above.
Name: [Employee Name]
Signature: ____________
Date: ____________
What to include
Two different timelines
Wages must be paid within two working days of the exit under the Code on Wages. Other dues follow the company's settlement process. Pay the wages on time even when the rest of the statement is still being checked.
Every line shown
List each earning and deduction separately with the basis: days, rate, years of service. A single net figure invites queries; a clear statement answers them in advance. The settlement process guide walks through each step.
Gratuity checked correctly
Gratuity is due after five years of continuous service at 15 days' wages per completed year on last drawn wages; fixed-term employees get it pro rata without the five-year minimum. Use the gratuity calculator to check the figure.
Recoveries only with a basis
Deduct notice shortfall, advances or unreturned assets only where the appointment letter, a signed authorisation or the policy allows it, and show the basis in the statement.
PF and tax documents
Tell the employee how to transfer or withdraw PF and when Form 16 will be issued. These are the two questions former employees ask most after leaving.
Common mistakes to avoid
- Holding final wages until the full settlement is ready, beyond two working days.
- Showing only a net amount without the earnings and deductions behind it.
- Leaving out gratuity for a fixed-term employee because service is under five years.
- Deducting notice shortfall that the company had agreed to waive.
- Using a receipt that makes the employee give up all future claims.
Run it in ZeniaHR
ZeniaHR's Direct Payroll can run an off-cycle payroll for the exit, drafted, recomputed and then finalized like any run, with paid days bounded by the exit date. Leave encashment for leave types set up as encashable adds a payroll earning, HR adds approved reimbursements as payroll inputs, and advance recovery or adjustments go in as deductions. The payslip PDF shows PF, ESI and professional tax. Gratuity and settlement reports help check the figures before HR signs the letter.
See it on your own data
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Book a free demoSee pricingFrequently asked questions
What is included in a full and final settlement?
Salary for days worked in the last month, leave encashment as per policy, bonus due, gratuity if the employee is eligible, approved reimbursements and any notice pay the company owes. From this, statutory deductions, tax, agreed advance recoveries and any notice shortfall are deducted. The letter should show each item.
How long does a company take to pay full and final settlement?
Under the Code on Wages, wages are due within two working days of an employee leaving for any reason. The remaining dues follow the company's settlement process and the rules for each payment, such as gratuity. A clear policy with a target timeline avoids repeated follow-ups from former employees.
Is gratuity part of full and final settlement?
Yes, when the employee is eligible. Gratuity is due after five years of continuous service, at 15 days' wages for each completed year on the last drawn wages. Fixed-term employees get it pro rata without the five-year minimum. Show the calculation in the settlement statement.
Can a company deduct notice period shortfall from final settlement?
If the appointment letter provides for pay in lieu of notice and the company has not waived the shortfall, it can recover the shortfall from the final settlement, within the deductions the law permits. Show the number of days and the rate used, and do not deduct if the company agreed to an early release without recovery.