Key takeaways
- Section 17(2) of the Code on Wages: wages due on exit must be paid within two working days.
- It applies to resignation as well as dismissal, removal and retrenchment.
- Final salary, leave encashment, pro-rata bonus and reimbursements belong in that window.
- Gratuity keeps its own deadline: 30 days from when it becomes payable.
For years, full and final settlement in India ran on habit rather than law. Thirty to forty-five days was normal, and many employers simply settled exits with the next month's payroll. The Code on Wages, in force since 21 November 2025, replaced that with a hard deadline.
Two working days is not long. It only works if you plan the settlement during the notice period, not after the last working day.
What goes into a full and final settlement
| Component | Direction | Deadline |
|---|
| Salary for days worked in the last month | Pay | 2 working days |
| Leave encashment for unused eligible leave | Pay | 2 working days |
| Pro-rata statutory bonus, incentives due | Pay | 2 working days |
| Pending reimbursements, arrears, overtime | Pay | 2 working days |
| Gratuity (5 years, or 1 year for fixed-term) | Pay | 30 days |
| Notice-period shortfall, advances, loans, unreturned assets | Recover | Settle in the same statement |
| Employee PF, ESI, PT and TDS on the final payment | Deduct | Deposit on the normal due dates |
Gratuity has a separate clockGratuity is due within 30 days of becoming payable, under the Code on Social Security. Paying it with the 2-day settlement is good practice when you can, but the legal deadline is 30 days. Use our gratuity calculator to check the amount.
Worked example
An employee resigns after 6 years and 3 months. Gross salary is ₹50,000 a month, of which wages (basic + DA) are ₹30,000. The last working day is the 20th of a 30-day month, with 12 days of unused earned leave and the notice period fully served.
Within 2 working days
Salary for 20 days₹33,333
Leave encashment (12 × 30,000 ÷ 26)₹13,846
Less employee PF (12% of 20,000)−₹2,400
Less professional tax−₹200
Net before TDS₹44,579
Within 30 days
Wages for gratuity₹30,000
Years counted (3 months not counted)6
Formula30,000 × 15 ÷ 26 × 6
TaxExempt up to ₹20 lakh
Gratuity₹1,03,846
Leave encashment divisors differ between employers (26 or 30 days). Pick one, write it into your leave policy and apply it consistently. PF here is on the wages for the 20 days worked.
How to settle in two working days
1
Start on the day the resignation is acceptedConfirm the last working day, notice to be served or bought out, and leave balance in writing.
2
Finish clearance before the last dayCollect assets, close advances and approve pending reimbursements during the notice period, so there is nothing left to wait for.
3
Run the F&F the day before exitCalculate salary, leave encashment, bonus, recoveries and tax, and get approval on the last working day.
4
Pay within two working daysRelease the payment, share the F&F statement, and issue the relieving and experience letters.
5
Close statutory recordsUpdate the date of exit on the EPFO portal so the employee can transfer or withdraw PF, pay gratuity within 30 days, and include the payment in the next TDS return.
How GoHRMS helps
F&F calculated the moment you need it
- Exit workflow from resignation to clearance
- Salary, leave encashment and bonus worked out automatically
- Gratuity on the labour-code wage definition
- F&F statement ready to share
See HR Software
Frequently asked questions
Under Section 17(2) of the Code on Wages, 2019, wages due to an employee who resigns, is dismissed, removed or retrenched must be paid within two working days of leaving. Gratuity has its own deadline of 30 days from when it becomes payable.
Yes. Section 17(2) covers removal, dismissal, retrenchment and resignation alike.
Wages cannot be held back indefinitely. Recoveries such as unreturned assets, advances or notice shortfall should be agreed in the employment contract and settled within the same timeline, ideally by completing clearance before the last working day.
Yes. Encashment of unused leave is treated as part of the wages due on exit and should be paid with the final salary within two working days.
Tags:Full and final settlementCode on WagesLeave encashmentGratuityExit process
GC
Gizmosys Compliance Team
Our compliance team runs payroll, PF, ESI and exit settlements every month for businesses across India, and writes these guides from that day-to-day experience. See our payroll services.
Sources:
2-day F&F under the labour codes (Nexdigm) ·
F&F components and gratuity timeline (CalcGuru) ·
F&F under the new labour code (Patron).
This article is general information, not legal advice.