What is fnf in job?

Question

What is fnf in job?

Jane haqcz Mujeeb · Answer

What is Full and Final Settlement in Payroll? Full and Final Settlement commonly known as FnF process is done when an employee is leaving the organization. At this time, he/she has to get paid for the last working month + any additional earnings or deductions.

Imogen Akin · Answer

Full and final settlement is the process of calculating all the dues payable to an employee who resigns, retires, or is removed by the management. The settlement process is not just limited to the salary drawn by the employee but also deductions.

This article covers all you need to know about the full and final settlement process and the calculations involved.

Whether an employee resigns from the job or is let go by the management, they are paid all the dues for their service till the last working day as FnF or full and final settlement. This includes any additional earnings or deductions as well.

The full and final settlement consists of clearances from various departments like IT, finance, HR, and admin. Also, it is important to understand which components to include while calculating the final dues payable to the employee. Let’s look at each of the activities in detail:

This involves returning company assets such as laptop, monitor, keyboard or mouse – whatever asset was provided to the employee on the last working day. In case of any damage, the same can be recovered from the employee FnF.

Employee account is updated with resigned/removed (whatever applicable) and email ID is deleted from the IT infrastructure.

This involves any outstanding reimbursements, expenses on company cards. Following are the various components to calculate the final dues payable to the employee:

As per the Payment of Wages Act, 1936, the salary due for the previous month should be paid up to the 7th or 10th of the following month. But, when the employee resigns from a job, the salary due up to the date of resignation needs to be calculated.

Unpaid salary also includes the annual benefits payable to employees like LTA (leave travel allowance) or other arrears. Since these amounts are usually paid once in the year, the liability should be calculated up to the employee’s last working day.

The calculation of this will depend on your company’s policy around benefits.

Recommended read: Gross Salary Meaning, Components & Calculation

As per the provisions of the Factories Act, 1948, the amount of unavailed leaves and bonuses need to be cleared by the 7th or 10th of the following month after the resignation.

The leaves available to the employees are different from company to company depending on a company’s policy. These leaves are usually called privilege leaves available for employees against continued service.

Here again, the leave encashment policy varies from company to company and hence the calculation of this component will depend on it.

Read more in our blog post ‘Leave Encashment Calculation.’

Similarly, bonuses can be awarded by the employer on special occasions or for exemplary performance by the employees. Any amount of the bonus awarded to the employee must also be paid.

A portion is deducted from the employee’s salary every month, and the employer also contributes the same amount. This pool of funds is deposited by the employer as Provident Fund and Pension Fund for the employees and helps build a corpus.

Provident Fund is payable to all employees in confirmed service, while Pension is payable on completion of 10 years of service on FnF settlement.

If the employee is resigning to join a new job, the PF/Pension can be transferred to the new employer or paid to the employee. On retirement, the fund balance is payable to the employees.

Read more about ‘Employee Provident Fund’ in this blog post

As per the Payments of Gratuity Act, gratuity is payable to an employee who has served the company for 4 years and 10 months or more. Any employee resigning from the job or being terminated after completion of this period is entitled to receive gratuity payment within 30 days. If there is any delay in payment of Gratuity during FnF settlement beyond 30 days, interest is payable to the employee.

Read more about ‘Gratuity & its calculation’ in this blog post

Any tax liability arising on the FnF amount is chargeable from the amount payable. TDS is deductible from the components that are taxable under the Income Tax Act, 1961. Although, the amount paid for gratuity and unpaid leaves is exempt from TDS under the Income Tax Act.

There are various HR policies that vary from company to company related to joining bonus, L&D, and notice period. Based on an employee’s tenure or company policy the joining bonus or a company’s latest bonus might be recovered in the FnF settlement.

Also, if the notice period falls short, the employee may/may not have to pay the relevant amount in the FnF settlement.

This involves getting the employee ID card or other related assets that are usually needed for entry/access in the company.

It is essential to note that an employee, whether resigning or being terminated, has the right to get all the dues settled within a reasonable timeframe. It is a common practice to finalise the process within 30-45 days from the employee’s last working day.

If the employer fails to fulfil the FnF settlement requirements, the employee can contest it legally, and the employer will be liable to pay interest on all the dues as a penalty.

The FnF settlement letter is issued with reference to the resignation letter submitted by the employee. There is no set format for the FnF letter and sometimes companies just generate a payslip in place of the letter. The following details should form part of the payslip.

Download FnF Payslip Format in Word for Free

Download FnF Payslip Format in PDF for Free

While computing the value of FnF settlement amount, the employers should keep the following points in mind:

Now that you know about the full and final settlement process, isn’t it a lot to do manually?

With RazorpayX Payroll, you can leave all the tedious calculations related to FnF settlement to the software and focus on other important tasks. Everything from leave encashment to gratuity calculation is automatically calculated. All you need to do is input the number of leaves and salary.

RazorpayX Payroll is an all-in-one HR software that takes care of:

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Nadira Jackler · Answer

FnF full form stands for Full and Final settlement policy. FnF settlement, also known as the Full and final settlement, happens when an employee is leaving the organisation. The resigned employees have to undergo this process. The employees are paid salary for their last working month including any additional bonus and tax deductions.

Your company decides whether the process shall begin after the employee is relieved or immediately after the resignation is handed over.

HR formalities such as exit interviews, feedback chains are also a part of the full and final settlement of the employee. The procedure of paying the employee and settling the calculation during the resignation process is called the final settlement process of the employee.

It may take up to a month to be completed since it’s a lengthy process that requires vast knowledge and experience for the same.

Also Read: Salary Calculator in India

Unpaid salary means the amount of salary payable to the said employee from the date of the resignation to his or her last day at work at the organisation.

It includes any arrears of salary, annual benefits such as leave travel allowance (LTA), or any unresolved pending amount not processed due to some reasons.

Calculation for Arrears of Salary:

Number of days for which compensation has to be paid X Gross Salary

Divided by 26 (number of paid days in a month)

According to the section 79 sub-section(11) of the Factories Act 1948, all unpaid dues regarding leaves should be paid before or by the 7th and 10th date of the following month.

The Karnataka shops & Commercial establishment Act, Section 15 subsection (3), also states that ‘All encashment dues must be cleared on or before the 10th of the following month.

Payment for non-availed leaves

The company policy mentions how the payment for the non-availed leaves has to be made. There are two different methods for the same:

Calculation of per day basic:

Number of days of unavailed leaves X Basic salary)

Divided by 26 days (Generally, the avg working/ paid days in a month)

For example, if an employee has a basic salary of Rs 15,000 and has 24 earned leaves which are not availed and basic salary, then encashed amount will be

(24*15,000)/26 = Rs. 13,846.15

The Payment of Gratuity Act 1972, section 7 sub-section (3), states that the gratuity amount should be paid within 30 days from the date of resignation. Failing to do so within the mentioned time will increase the interest payment. If the employee has completed 4 years and 240 days, then the gratuity amount must be paid within 30 days, or else it will gain an interest rate.

'Pensionable service' refers to the completion of a minimum of 10 years of work with an organisation. Employees who have completed such a time period are entitled to a pension. On producing the 'Scheme Certificate' after their retirement or at 58 years of age; whichever is later, by the employee, they can avail the pension benefits. As a portion of the employer's Provident Fund contribution, certain employees are given a pension. Also known as EPS, it specifies a minimum limit of Rs 1,000 and a maximum of Rs 7,500.

Profession tax (if any), Income Tax, Provident Fund and unresolved compensation for the notice period not served are included in deductions. Tax deducted at source or TDS, which comes under the Income Tax Act, exempts gratuity received and leave encashments. All other benefits and payments shall attract TDS or relevant sections of the Income Tax Act. The EPF Act 1952, section 72 sub-section (5) states that within 5 days of the claim submitted by the employee, the EPF forms shall be forwarded by the employer.

Income tax deductions also depend upon the income bracket the employee comes under.

When does the Full and Final Settlement take place?

According to the full and final settlement law in India know as per the Payment of Wages Act, the final settlement needs to be done within 2 days from the employee’s last working day. However, receiving the final payment and clearance might take some time. It is a common company policy to finish the process within 30-45 days from the employee’s last working day.

Also Read: Employees' Provident Fund Organisation - EPFO Login Portal & EPFO Latest News

The Full and Final settlement includes minor tasks that make the whole process complex which could get confusing at times, a few policies and procedures need to be kept in place. Your organisation must have a clear set of pre-defined separation policies that shall be mentioned at the beginning of the job and in the appointment contract. This shall make the task a little easier for the payroll department. Some policies and strategies for the same are mentioned below:

Defining separation policies is essential, both for the employer and employee. The separation policy mentions the rules for full & final settlement, notice period to be served, gratuity amount, paid/ unpaid leaves, pending allowances and other set procedures of the organisation. This helps the payroll and HR departments to prevent errors and avoid ambiguity. It reduces unnecessary disputes when faced with the FnF settlement.

Specific organisations continue their employee’s payroll as per the regular salary schedule, where the salary for the last working month is withheld. This is known as the partial FnF settlement process. This strategy eases the calculations. The payroll department has to calculate the tax deductions and TDS for the last working month only in this method.

With organisations growing rapidly, or ones that might be laying off more than a couple of employees at once, calculating every employee's payroll, final settlement, arrears, etc., could become a tedious task. When faced with a large number of lay-offs, settlements are approached in batches. They are also known as bulk settlements. This method allows the organisations to clear and process the settlement amount of more than one employee at the same time.

Also Read: Special Allowances in India- Taxation and Calculation

For there to be no complications during the process, the employee should pay attention to these pointers:

Asset claim and exit interviews are a critical part of this process. At the time of joining, the employee is provided with some assets by the company, such as a laptop, phone, etc. And at the time of leaving, the provided assets shall have to be returned to the company. A track has to be kept of such resources by the employers. Managing these resources manually could become a problematic and tedious task when the employee strength increases. Therefore a professional HR and customised payroll software help organisations keep a track record of such assets.

The HR employees and senior managers are assigned to calculate the full & final settlement for the employees. Smaller companies may process each employee’s final settlement individually; larger companies process them together in batches.

A combination of all these separate calculations discussed earlier form a part of the Full & Final settlement. Along with the calculations mentioned above, calculation of the employee's balance salary, deduction of taxes, clearing of employee's unpaid leaves, any arrears and provident fund contribution is included in the FnF salary. Due to the high possibility of human error, these calculations are hard to do manually. It is recommended to use relevant technology so that the settlement can be done without any hindrance. An FnF settlement letter is drafted, which summarises the entire process at the end.

Full and final settlement is a detail-oriented and systematic process; when settled correctly, it helps to relieve the employee from the organisation in an orderly manner. Proficiency in HR, along with accurate and error-free calculations, are essentially required. Customised software is used, which is popular among organisations nowadays. The software is easy to use and helps organisations accelerate their FnF process, which helps avoid and prevent any mistakes in calculations or minor details. If the organisation states the rules, policies, and procedures framed according to the law, the FnF might become an easy task. All complaints and grievances arising due to the FnF should be addressed formally in the correct order.

Binding to the set rules, regulations and policies of FnF would assist an organisation in avoiding futile disputes and aid the organisation to grow exponentially. An organisation with a strong FnF framework generally sets deadlines internally to be met for the whole process. In a perfect full & final settlement process, the HR section would seamlessly facilitate all transactions necessary between the shareholders and resolve the unsettled issues before the last working day of the employee.

Altaf Ivy · Answer

The current new age code says that a company has to pay the full and final settlement payments to employees within two days after their last working day.

What does the law state? – “if an employee has been – (i) terminated or discharged from service; or (ii) economized or has resigned from the organization, or has been unemployed if the company has been closed, all the salary settlements related to the employee have to be paid within two days if terminated, dismissed, economization, or if the employee has resigned.

For paying the employees within a specified time frame, there are several rules that the individual State Governments govern. Make sure you are abiding by the state laws in your state. It depends on the company’s decision if they want to provide the settlement before the termination or after. Create a program for salaried employees. It is a contractual obligation where an employee is supposed to let the organization know and give them a notice before quitting the job. This time gives ample time to the company to find a replacement. Additionally, it allows the employer adequate time to negotiate the settlement terms with the worker. Ensure that you are paying the employee during their entire notice period. Then, as an organization, you can choose whether you want your employee to work during the notice period.

The following entitlements must be included in an employee’s final salary

1. All unpaid compensation for hours performed, including bonuses and fines

2. Any earned paid time off

An employee should provide a notice period before leaving the organization so that an employer can quickly shift the roles and responsibilities to the new employee. Every company has a different notice period. For example, an IT company gives their employees around 2 to 3 months as a notice period, whereas some companies offer one month’s notice period. (mention notice period days)

Turn in all the company property like mobile phones, laptops, houses, cars, etc., and afterward collect the ‘no dues’ from your HR.

The terminated employee’s salary is calculated from unpaid to extra payments. The FnF payment is provided after one month of termination, but the employee still needs to receive the experience letter.

Surrya Naik · Answer