India’s long-awaited Labour Codes, formally notified and now in the implementation phase, are set to fundamentally reshape workplace norms across sectors. Among the most consequential changes is the mandatory two-day timeline for employers to complete full and final (F&F) settlement when an employee leaves a company.
For decades, employees routinely waited 45 to 60 days, and sometimes even longer, for salary dues, leave encashment, and other payouts. The new provision, introduced under Section 17(2) of the Code on Wages, 2019, seeks to end this practice by requiring all dues to be cleared within two working days of resignation, termination, retrenchment, or closure of the establishment.
The Labour Ministry has described the reform as a step toward ensuring faster, more transparent wage settlements. It clearly stated: “On termination or resignation; wages must be paid within two working days.”
But how prepared are Indian employers to meet such a tight deadline? Two experts spoke about the challenges, the compliance requirements, and what it means for businesses — large and small.
A major expansion from earlier laws
Explaining the shift from earlier provisions, Pankaj Savla, Director at NPV Labour Law Solution Pvt Ltd, points out that the foundation of this rule existed in older law, but in a much narrower form.
Savla says: “Section 5 of erstwhile Payment of Wages Act, 1936 was carrying the same provision for employees terminated by the employer. Further, the said provision was applicable only to a person whose wages does not exceed Rs. 24000 per month. However, under the Code on Wages, the mandate of Full & Final Settlement within 2 working days will be applicable to all the persons either they are falling under the definition of ‘Employee’ or ‘Worker’.”
In addition, the scope has widened significantly. The two-day rule is not limited to termination—it now includes resignation, retrenchment, and closure-related separations.
However, Savla also highlights an operational gap.
“Presently, except above provision Code does not provide any guidelines or procedure to be followed and hence Organisations are waiting for the Notified Rules which may carry the guidelines or procedure to be followed.”
Preparedness varies: MSMEs vs large organisations
Most companies understand the mandate, but execution will vary depending on scale and systems.
Savla explains that challenges will not be uniform:
MSMEs may struggle due to limited HR staff, cash-flow constraints, and administrative complexity across states.
Large organisations with pan-India presence may face delays arising from asset return workflows, exit formalities, and aligning HR, IT, finance, and payroll systems.
Savla adds that entities must rethink their compliance systems: “Employers’ preparedness to meet the 2-day full and final (F&F) settlement requirement under the new Code on Wages varies, but many may face operational challenges.”
Tech-enabled off-boarding will decide compliance
Ramachandran Krishnamoorthy, Director – Payroll Services at Nexdigm, believes the mandate is achievable—especially for smooth voluntary exits.
According to him: “It is possible to settle within 2 days and not for all. It also depends upon the nature of exit of an employee and other factors associated with his employment.”
He emphasises that a well-designed digital workflow can make voluntary exits far more manageable:
-HRMS platforms that integrate attendance, payroll, asset management, and finance
-Clearances completed by all departments before the last working day
-Automated checklists and real-time approvals
For involuntary exits, he says the employer must plan in advance and ensure that information flows to payroll teams immediately.
Krishnamoorthy adds: “I don’t foresee any compliance challenges due to adherence to timelines.”
Will the two-day rule be enforced strictly?
Savla points to strong enforcement provisions under the new Wages Code. The law provides for:
-Statutory obligation under Section 17(2)
-Monitoring by Inspector-cum-Facilitators
-Penalties up to ₹50,000 for underpayment
-₹20,000 penalty for contravention of any provision
-No leniency for repeat offenders within five years
Savla explains: “Thus, the codified deadline which is backed by monitoring & enforceable penalties will ensure that employers adhere to the two-day F&F settlement requirement under the new Code on Wages.”
Krishnamoorthy, however, notes that the penalties are indirect: “There is no specific penalty for such non-adherence mentioned in the code. Only in cases where employee files the claim for lesser or wrong payments, the employer will be penalized if proven for guilty.”
He adds that future rules may require reporting the date of F&F payment—similar to gratuity—to ensure adherence.
A transformative shift for workers
The 2-day settlement rule stands among the most worker-friendly reforms in India’s new labour framework. With improved transparency, stricter timelines, and simplified legal structures, the Code on Wages aims to reduce financial uncertainty for workers leaving a job.
While companies will need to upgrade HRMS systems, streamline exit processes, and improve inter-departmental coordination, the reform marks a significant step toward a faster and fairer labour ecosystem.