A full and final settlement calculation adds your salary for the days worked in your last month, leave encashment and any variable pay your policy pays pro rata, then subtracts recoveries the law allows, and often a notice shortfall it does not list. Under section 17(2) of the Code on Wages, 2019, the wages in it are due within two working days of your resignation, read as your last day, and gratuity within 30 days. Below, Siddharth's settlement on a ₹1,00,000 basic is priced line by line, with each due date.
When must a full and final settlement be paid?
Section 17(2) of the Code on Wages, in force since 21 November 2025, requires wages to be paid within two working days of a resignation, dismissal or retrenchment. The clock is read from your last working day, when the resignation takes effect. The old Payment of Wages Act covered only those earning up to ₹24,000 a month; the Code covers every private-sector employee.
So the F&F timeline for salary is two working days from your last day, unless the government sets another limit under section 17(3). Leave encashment is not named in the Code's exclusions from wages, so it can be read as due within the same two days, though an employer may argue it is an excluded "other retirement benefit". Gratuity is excluded from wages: if your employer has ten or more employees, section 56 of the Code on Social Security, 2020 makes it due within 30 days of becoming payable.
Siddharth's settlement on a ₹1,00,000 basic, line by line
Siddharth's ₹28 lakh CTC is about ₹24.6 lakh fixed plus a ₹3,40,000 target variable. His basic of ₹1,00,000 is half of his ₹2,00,000 total monthly pay counting the employer's PF, so his gross salary is ₹1,88,000 a month. He has 6 years and 4 months of service and 18 days of unused earned leave, and he left on Friday 14 August 2026, 15 days before his 60-day notice would have ended.
| Line | Amount | When it is due |
|---|---|---|
| Salary, 1 to 14 August | ₹84,903 | Two working days: Tuesday 18 August |
| Leave encashment, 18 days | ₹69,231 (basic ÷ 26) or ₹60,000 (basic ÷ 30) | Arguably the same two days |
| Pro rata variable, if paid | ₹1,26,685 at target, or ₹0 | The bonus policy's date, or arguably two days |
| Notice shortfall, 15 days | ₹50,000 on basic, or ₹94,000 on gross, if set off | Not a listed deduction, see below |
| Gratuity, 6 years | ₹3,46,154 | 30 days: by 13 September |
Salary is ₹1,88,000 × 14 ÷ 31 = ₹84,903, counting calendar days. Leave encashment is ₹1,00,000 × 18 ÷ 26 = ₹69,231 if his company divides by working days, or ₹60,000 at a 30-day month; some policies pay on gross. A pro rata variable for the 136 days from 1 April to 14 August, at full payout, is ₹3,40,000 × 136 ÷ 365 = ₹1,26,685. Many policies pay nothing to anyone off the rolls on the payout date.
Gratuity counts six years, since only a part year of more than six months rounds up: ₹1,00,000 × 15 ÷ 26 × 6 = ₹3,46,154, ₹57,692 a year, as in gratuity before 5 years.
What can the employer deduct from final pay?
Section 18 of the Code allows only the deductions it lists, among them income tax, your own PF, unpaid advances, loans and overpaid wages, and caps them together at 50% of wages in a wage period: ₹42,451 on Siddharth's salary alone, or ₹72,451 to ₹77,067 if his leave encashment counts as wages. Recovery of notice pay is not on the list. Notice period buyout covers whether it is charged on basic or gross.
As the Code reads, nothing comes off for notice: Siddharth receives ₹2,80,819 with the variable and leave at basic ÷ 26, or ₹1,44,903 with no variable and leave at basic ÷ 30, before tax and his own PF. The employer can then claim the shortfall separately. Many employers set it off anyway under contract, leaving ₹2,30,819 with the shortfall on basic, or ₹50,903 on gross; the Code does not list that set-off, and in the second case ₹94,000 exceeds the cap on either reading of his wages, so it is open to challenge. Gratuity of ₹3,46,154 comes on top either way.
Treated as an advance, a joining bonus clawback is held to the same 50% cap, so the employer may ask for any balance separately.
What the settlement does not include
Your PF is not part of it: the balance stays in your EPF account until you transfer it through your UAN or claim it, as the EPF guide explains. Your Form 16 (Form No. 130 from tax year 2026-27) comes after the year ends.
What if the settlement is 45 days late?
By 28 September, 45 days on, Siddharth has neither payment. His first step is a written reminder to HR citing both sections and both dates: wages due on 18 August, gratuity by 13 September. If that fails, he can claim under section 45 of the Code on Wages within three years; the authority may order compensation of up to ten times the amount due. Gratuity paid late carries simple interest from the date it became payable, his last day, not from day 30.
Dhi answers questions such as what your settlement should add up to from your own numbers, and looks at them alongside your cash flow, net worth, protection and goals. Dhi earns no commissions and nudges you when something needs attention.
Frequently asked questions
This is general information for salaried individuals in India, not personalised financial advice.
