The new wage code has put in place certain important provisions related to worker’s full and final settlement.
Read this update to learn about an important upcoming provision related to the full and final settlement of wages for employees.
The new Labour Codes (i.e., (i) Code on Wages, (ii) Code on Social Security, (iii) Code on Industrial Relations and (iv) Code on Occupational Safety, Health and Working Conditions), once notified, will herald the simplification and universalization of labour regulations in India.
The current labour laws are currently governed by multiple legislations. The new Codes bring in with them better and wider coverage of the workforce for social security benefits, ease of compliance, digitisation of employees’ records and ease of access to information such as vacancies, etc.
What is full and final settlement ?
Full and final settlement is the process followed by an employer when an employee resigns from the company. These proceedings include the employee’s last month’s salary plus any other additional earnings or deductions.
Full and final settlement law in India
Wages, as defined under the Payment of Wages Act 1936, mean the total remuneration paid to the employee, except for special inclusions under the Act. At present, there is no clarity regarding the timeline of full and final settlement, as companies have their own policies.
New Wage code provision
As per Section 17(2) of the Code on Wages, the wages shall be paid within two working days.
As per the new provision, when an employee has been removed, dismissed from service, retrenched, or resigned etc. due to closure of the establishment, the wages payable to him shall be paid within two working days of his removal, dismissal, retrenchment or, as the case may be, his resignation.
Similarly, Leave Encashment shall be paid under the Occupational Safety, Health & Working Conditions, 2020, with 2 days of such termination. However, the term Full and Final Settlement normally includes other elements also, for example, Gratuity. And for Gratuity, the Code on Social Security, 2020 and draft central Rules thereunder provide 30 days’ timeline.
Therefore, it is not the entire component of the F&F Settlement that needs to be settled in 2 days.
Read more about New wage code and upcoming provisions here.