New Labour Code Forces Companies to Settle FnF Rapidly

In a landmark move poised to reshape corporate exit practices across India, the Central Government has introduced a stringent two-day deadline for the full and final settlement (FnF) of wages for employees who resign, are terminated, or are retrenched.

This provision, embedded in the Code on Wages, 2019, drastically reduces the previous settlement period, which often spanned 30 to 90 days, providing unprecedented financial relief to separating employees.

FnF Rules: The New Mandate for Financial Security

Under the newly enforced Code on Wages, specifically Section 17(2), employers are now mandated to pay the final wages—the complete full and final settlement—to an employee within two working days of their last day of employment.

This rule applies uniformly across the board, covering all forms of separation, including removal, dismissal, retrenchment, or voluntary resignation.

Crucially, the Code eliminates the earlier salary-based limitations under acts like the Payment of Wages Act, 1936.

This change ensures that the protection extends to all employees regardless of their salary level or job function.

This change is driven by the government’s objective to facilitate faster access to legitimate dues.

It also aims to ensure financial cushioning, particularly in cases of sudden job loss.

Historically, protracted settlement periods significantly impacted an employee’s financial planning during career transitions.

They were often forced to wait months for funds that included accrued leave encashment and withheld salary.

Operational Challenges for Corporate India

While the amendment is being hailed as a major victory for employee welfare, it presents substantial operational and logistical challenges for employers.

This is particularly true for large corporations.

The previously lengthy settlement window allowed HR and payroll departments ample time to complete complex exit formalities.

These formalities included reconciling company assets (especially critical in remote working environments), clearing travel expenses, and managing potential clawbacks.

Legal experts note that meeting the condensed 48-hour timeframe will require companies to immediately revamp their payroll, accounting, and asset retrieval systems.

This necessity stems from the strict deadline.

Many organizations traditionally aligned FnF release with the existing monthly payroll cycle immediately following the exit date.

The new rule demands real-time processing and immediate clearance.

This is forcing employers to accelerate internal processes and potentially necessitates a re-evaluation of conditionalities previously linked to asset return.

Implementation Status and Outlook

It is important to note that the four new Labour Codes—the Code on Wages (2019), the Industrial Relations Code (2020), the Code on Social Security (2020), and the Occupational Safety, Health and Working Conditions (OSHWC) Code (2020)—were recently brought into effect.

However, the complete and absolute implementation of many provisions, including the 48-hour settlement rule, hinges on the Central and State Governments notifying the final, detailed rules.

These detailed rules and regulations must be formally announced to proceed.

Until these final rules are fully established across all states, there remains a period of transition. During this time, existing laws may continue to apply in certain jurisdictions.

Nonetheless, the notification of Section 17(2) signals a definitive and irreversible shift towards greater employer accountability.

Furthermore, it ensures a more humane exit process for the Indian workforce.

This new framework represents a concerted effort to standardize and modernize labour relations.

It promises enhanced financial security and dignity for workers across all sectors.

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