What is included in a final settlement?
A full and final settlement (often called "F&F" or "clearance") is the last payment from your employer. It closes all money matters between you. A typical settlement in Pakistan has these parts:
- Salary for days worked in the final month: gross salary ÷ 30 × days worked.
- Leave encashment for unused earned leave, if your policy pays it: salary ÷ 30 × leave days.
- Gratuity, if your employer runs a gratuity scheme instead of (or as well as) a provident fund: usually one month's basic salary for each completed year.
- Notice period adjustment: a deduction if you left without serving the full notice, or extra pay if the employer ended the contract without notice.
- Other dues: pending bonus, commission, arrears of an increment, expense claims.
- Recoveries: outstanding staff loans, salary advances, unreturned company property.
Your provident fund balance is normally paid separately by the PF trust, not through payroll. Use the provident fund calculator to estimate it.
Worked example
Gross Rs 120,000, basic Rs 72,000, last day on the 15th, 12 days of leave, four years of service with gratuity, full notice served:
- Salary: 120,000 ÷ 30 × 15 = Rs 60,000
- Leave: 120,000 ÷ 30 × 12 = Rs 48,000
- Gratuity: 72,000 × 4 = Rs 288,000
- Total before tax: Rs 396,000
If the same employee left with 30 days of notice unserved, one month's gross (Rs 120,000) would usually be deducted.
Notice period rules
For permanent workers covered by the Standing Orders Ordinance, either side generally gives one month's notice or pays one month's wages in lieu. Many white-collar contracts set one to three months. If you resign and the employer waives the notice, nothing should be deducted. If the employer terminates you without notice (other than for proven misconduct), you are normally entitled to pay in lieu of notice. Read your appointment letter, then our guide on resignation and notice period rules.
How long can an employer take?
Under the Payment of Wages Act, wages of a person whose employment is terminated must be paid before the expiry of the second working day after termination. In practice, companies clear final settlements after the clearance process, commonly within 30 days. If your dues are delayed for months, raise it in writing with HR first; covered workers can approach the labour department or labour court.
Tax on the final settlement
Salary, leave encashment and bonus are taxed as salary. Gratuity from an approved gratuity fund enjoys an exemption up to a limit, while unapproved gratuity is taxable. Your employer will withhold tax on the final payroll; any excess can be claimed back in your return. Get a salary tax certificate for the year before you leave.
Checklist before you sign
- Ask for a written breakdown of every line.
- Check the leave balance against your own records.
- Confirm the gratuity basis (basic salary, years counted, part-year rounding).
- Get your experience letter, salary certificate and tax certificate.
- Note when the PF trust will pay your balance.
Frequently asked questions
What is included in full and final settlement in Pakistan?
Salary for days worked, leave encashment, gratuity (if applicable), notice period adjustment, pending bonus or arrears, minus recoveries such as loans and advances. PF is paid separately.
How is the final month salary calculated?
Gross salary ÷ 30 × days worked in that month.
Is notice period salary deducted if I leave early?
Usually yes: the unserved days are deducted at the daily rate unless the employer waives the notice.
When should I receive my final settlement?
The law expects prompt payment after termination; most companies pay after clearance, typically within about 30 days.
Is my final settlement taxable?
Salary, leave and bonus are taxable as salary. Approved gratuity has a partial exemption.