Full and Final Settlementअन्तिम हिसाब
Full and final settlement is the closing calculation when an employee leaves: salary for days worked, leave encashment, any dues owed to them, less any recoveries, paid once every clearance is complete.
Also called: FnF, final settlement, exit settlement
What is in it
- Salary for days actually worked in the final month.
- Encashment of any leave balance the policy allows to be encashed.
- Notice pay, where notice was not served and the contract provides for payment in lieu.
- Pro-rated festival expense if the entitlement arose and was not paid.
- Less recoveries: advances, loan balances, unreturned assets, excess leave taken.
What is usually not in it
Gratuity, for service under the funded model. The employer has been depositing 8.33% of basic every month into the Social Security Fund or an approved fund, so there is no lump sum for the employer to settle. The employee claims that balance from the fund.
The same applies to the retirement contribution balance: it sits with the fund, not with the employer.
Sequence matters
Settlement comes after clearance, not alongside it. Assets returned, handover complete, system access revoked, and only then the final payment. Paying first and chasing an unreturned laptop afterwards rarely works.
The final payment is taxable in the period it is paid, so the withholding on it has to be calculated rather than assumed to be nil.
Full and Final Settlement, answered
Salary for days worked, encashment of any encashable leave balance, notice pay where applicable, and pro-rated festival expense if due, less recoveries such as advances and unreturned assets.
Not for service under the funded model. The employer deposits 8.33% of basic monthly into the fund throughout employment, so the employee claims the accumulated balance from the fund rather than from the employer.
Yes. It is income in the period it is paid, so tax has to be withheld on it in the normal way.
This page explains general practice in Nepal. It is not legal or tax advice, and statutory figures are revised from time to time. Check the current Act, rule or notice before acting on it.
Related terms
- Leave Encashmentबिदा सटहीLeave encashment is the conversion of an unused leave balance into money. In Nepal it applies to home leave that has accumulated beyond the ninety-day ceiling, and to the remaining balance when an employee leaves.
- GratuityउपदानGratuity is a retirement benefit an employer funds throughout an employee's service rather than paying as a lump sum at exit. Under the Labour Act 2074 the employer deposits 8.33% of basic salary every month into the Social Security Fund or an approved retirement fund.
- Notice Periodसूचना अवधिA notice period is the time between notifying the other party that employment will end and the last working day. In Nepal the requirement depends on the ground for ending the engagement and on what the contract says.
- Offboardingबहिर्गमन प्रक्रियाOffboarding is the process of ending employment properly: handover, asset recovery, access revocation, clearance from each department, the exit conversation, and the final settlement.
- TDS (Tax Deducted at Source)स्रोतमा कर कट्टीTDS is income tax withheld by the employer from an employee's salary each month and deposited with the Inland Revenue Department on the employee's behalf. It is calculated on annual projected income and spread across the year, not charged month by month in isolation.
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