Full and Final settlement law under New Labour Code 2025

• 27 Nov 2025
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With the implementation of new labour code, numerous small details that were either informal or handled differently by several companies have now been formally standardized. One notable change under the code pertains to the full and final settlement (FnF). As per the new labour code, the companies must pay the employees’ FnF settlement money within a period of two working days. 

When an employee’s tenure at a company ends, the full and final (FnF) settlement becomes quintessential. It helps them manage their expenses until they find a new job or supports their retirement needs. Receiving their FnF amount within just two working days, instead of having to wait for a few weeks or even a month, allows them to stay stress free.

Earlier, some organizations used to process the settlement on the employee’s last working day, while other organizations took up to a month. This difference mainly existed because exit payouts like gratuity and leave encashment had their own different timelines. So, in order to stay compliant with the laws, companies would usually bundle all these components together and then clear them all at once.

Key FnF Settlement Payment Changes under New Labour Code

The new wage code in India introduces uniformity across all kinds of employment situations. Under Section 17(2) of the Code on Wages 2019, all the employees are entitled to receive their final wages, i.e., the complete FnF of salary (except for certain statutory payments like gratuity), within two working days after the last working day. 

This provision now includes all forms of separation of employment, including voluntary resignation. It applies to all the employees in a uniform manner regardless of their salary level or their job classification. It eliminates the previous salary based limitation completely. 

Asish Philip, Executive Partner at Lakshmikumaran and Sridharan Attorneys, mentioned that under the Code on Wages, employers are now required to disburse full and final wages within two working days of an employee's resignation, removal, dismissal or retrenchment. This is quite a major reduction from the previous 30-day timeline for such settlements. 

Arjun Paleri, Partner, BTG Advaya, said that currently, final wage settlements often take several weeks, and in some cases, they extend to months after an employee's last working day. As a result, employees are left waiting for extended periods to receive their full and final settlements, which can be a substantial amount, especially for long-term employees. 

The new rule mandates final wage settlements’ completion by employers within the timeline of two working days after the last working day. This is a much quicker process than current practices. This change eliminates lengthy waiting periods for the employees and is highly advantageous for them.

Source: Economic Times