2-day Full and Final Settlement under New Labour Codes 2025

On 21st November 2025, the Indian Government implemented the long-awaited New Labour Codes, which consolidated 29 older labour and employment-related Acts and Laws into 4 Laws:

• Code on Wages, 2019
• Industrial Relations Code, 2020
• Code on Social Security, 2020
• Occupational Safety, Health and Working Conditions Code, 2020

These Labour Codes simplify compliance for companies while providing multiple benefits to the employees. These Laws introduce several benefits to Fixed Term Employees (FTEs) and permanent employees, while also providing additional social security to contract and gig workers.

One of the most impactful changes has been the reduction in the full and final settlement process to 2 working days from the industry practice of 30 to 45 days.

What are the changes in the FnF Settlement Laws in India?

Section 17 (2) of the Code on Wages, 2019, states:

‘Where an employee has been removed or dismissed from service, or 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.’

In simple terms, it states that all dues should be paid within 2 working days from the date of resignation or termination of the employee, or company retrenchment or shutdown. While there were provisions to clear dues on the last working day, or a maximum of 2 working days under the earlier Payment of Wages Act, 1936, it only applied to employees who had been laid off. The Code on Wages, 2019, modifies the rule to include all employees.

Impact on Employees

Employees will get their dues within 2 working days, instead of having to wait for 1 to 1.5 months. It provides them with fair wages for the work they have undertaken while they were employed with the organisation. It provides them with financial stability during their transition period between jobs.

Since the Law also provisions monitoring and penalties for specific scenarios, such as underpayment, it holds the employer accountable for clearing dues within the allocated time frame of 2 working days. With financial security taken care of, employees can have peace of mind, instead of having to take repeated follow-ups for their FnF settlement.

Impact on Employers

As for the employers, they need to update their internal HR and accounting processes to comply with the New Labour Codes. They need to ensure that any software they use for payroll, such as accounting systems, payroll software, HRMS, etc., is updated with the regulations defined by the New Labour Codes. If the systems are ready, they can easily coordinate to ensure accurate records and complete compliance.

While it may seem like a burden for organizations, it can also benefit them in the long run, as the reforms within the Laws promote transparency and streamline payment processes. The HR department and the accounting team need not refer to multiple rules and regulations to ensure that their employee management systems remain compliant. Instead, they simply need to follow the rules defined within these 4 Labour Codes, making compliance simple and easy.

Tech-Enabled Offboarding to the Rescue

Coming back to the FnF Settlement, you can deploy advanced software like Pocket HRMS to ensure a smoother onboarding process for your employees. With tech-enabled offboarding, you can enjoy automated processes, which make offboarding smooth and easy for the employees who are leaving.

A well-designed offboarding workflow, powered by robust offboarding software, will ensure timely payments and FnF settlements, as it takes care of all calculations. It can also make offboarding associated tasks, such as granting clearances, generating relieving letters, etc., automatic, making it seamless for the HR teams. With automated checklists and real-time approval access, it also streamlines FnF settlement, enabling easier compliance handling.

Also Read:

Conclusion

The 2-day full and final settlement mandated by the New Labour Codes 2025 is a healthy addition towards simplified and streamlined compliance. It safeguards the employees from financial instability by providing them with their wages at the earliest. On the other hand, while the transition to 2-day FnF settlement may seem hectic for employers, it is a welcome change as it ensures timely offboarding and simplified compliance handling.