Companies will need to pay all the dues as well as the full and final settlement to employees within two days of the resignation, dismissal or retirement under the new wage code. India’s new labour reforms, which the Centre aims to implement from July 1, mandate that the employees will have greater protection against their previous employers when leaving a job or being dismissed from one.
Full and final settlement is the process in which a company clears all the dues towards an employee upon the exit of the employee from the company or termination of the job. The settlement doesn’t involve salary drawn but also includes other deductions and payments, like leave encashment, reimbursements, variables etc.
As a common practice most of the companies were taking 45-60 days from the employee’s last working day to clear the full and final settlement. Even many companies were taking up to 90 days. However, under the new wage code, all companies must settle the dues within just two days of an employee’s exit.
Section 17 clause 2 of the Code on Wages, 2019, states, “Where an employee has been - (i) removed or dismissed from service; or (ii) retrenched or has resigned from service, or became unemployed 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."
The act along with three others on industrial relations, social security and occupational safety & health (OSH) was passed by the Parliament in 2020 but has not yet been implemented. The reforms tackle areas like wages, social security (pension, gratuity), labour welfare, health, safety and working conditions (including that of women), where regulation in India had stagnated in the face of accelerated global corporate progress.
Some of the major changes that will be brought to India’s labour market through these new codes are changes in working hours, PF contribution from employers and changes in take-home salary.
Four new labour codes— Code on Wages, Industrial Relations Code, Code on Social Security and Occupational Safety, Health and Working Conditions Code— replace 29 Central labour laws.
All the states and UTs need to ratify these new labour statutes as labour is a subject in the concurrent list. However, many states and UTs are yet to issue the guidelines under the new labour codes.
New labour laws may change work hours, PF and salary structure; details here
(Edited by : Sudarsanan Mani)
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