Full and Final Settlement Calculator – 2-Day Rule

The two-working-day deadline

The Code on Wages requires final wages to be paid within two working days when an employee resigns, is removed, dismissed or retrenched, or the establishment closes. The old practice of settling in 30 to 45 days no longer complies. The clock counts working days, so weekly offs and holidays are skipped: an employee whose last day is Friday 18 September 2026, in an office closed on Saturdays and Sundays, must be paid by Tuesday 22 September.

Worked example

An employee resigns after serving full notice. They joined on 1 June 2020, their last day is 18 September 2026, gross salary is ₹60,000 and Code wages are ₹30,000. Eighteen days of September are unpaid and 12 days of earned leave are left.

Salary and leave are due by 22 September. Gratuity has its own deadline of 30 days, so by 18 October. Many employers pay everything together to keep it simple.

Which base each item uses

Unpaid salary and notice pay use gross salary, because they replace the pay the employee would have received. Leave encashment and gratuity use Code wages: basic, DA and retaining allowance, plus any add-back under the 50% rule. Some company policies encash leave on gross instead; if yours does, enter the gross figure as wages.

Recovering notice pay

If an employee leaves without serving notice, you can deduct the shortfall only if the appointment letter or standing orders allow it. Show it as a separate line in the settlement. Holding back the whole settlement until notice is “bought out” breaches the two-day rule.

Tax on the settlement

• Salary and notice pay are fully taxable, and TDS applies.
• Gratuity is exempt up to ₹20 lakh for employees covered by the gratuity law.
• Leave encashment on leaving a private employer is exempt up to a lifetime limit of ₹25 lakh.

If the exit is a retrenchment, the compensation and reskilling fund are added automatically. The retrenchment calculator explains each one.