The order matters
Full-and-final settlement is a sequence: notice pay, leave encashment, gratuity (if applicable), recoveries (advances, asset deductions), and finally statutory deductions on the net. Computing them out of order produces the wrong tax treatment, especially when the employee is in the new TDS regime.
We codified this order in our F&F flow and the most common support ticket is gone.
Gratuity, the rounding gotcha
Gratuity is fifteen days of pay for every completed year of service, capped at twenty lakhs. The rounding rule: more than six months counts as a full year, less than six does not. Many companies round up irrespective, paying out gratuity that is not actually due.
It works in the employee's favour, so it does not generate disputes from the employee side. It does generate disputes with finance during audit. We apply the strict rule by default and let customers override per case.
Notice pay and the buy-out
If the employee buys out their notice period, the buy-out amount is salary income for tax purposes. Companies often miss the TDS deduction on the buy-out, leaving the employee with a year-end surprise. We surface this at the F&F preview step and prompt the payroll administrator to confirm the deduction.
The DPDP angle (covered in this companion post) is a separate but related concern: the F&F packet now includes the data-retention notice.
Statutory letters at exit
The exit packet must include the relieving letter, experience letter, F&F statement, Form 16 (if mid-year and applicable), and PF transfer or withdrawal forms. We auto-generate all of them; the customer reviews and signs. The whole packet ships to the ex-employee within seven working days of the last working day.