Discription
ABSTRACT
Background: India has introduced four Labour Codes to simplify and consolidate its labour laws, by bringing important changes to the employment practices across organizations. These include the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020, and the Occupational Safety, Health and Working Conditions Code, 2020. A major reform is introduced through the Section 17(2) of the Code on Wages, 2019 which requires employers to complete the payment of all wages due to an employee within two working days of separation. This requirement has changed the employee separation and Full & Final (F&F) settlement processes which compels the organizations to streamline their exit procedures and payroll operations to ensure a timely compliance.
Problem: Although the Labour Codes require the employers to settle employee wages within two working days of separation, many organizations still follow the traditional Full & Final (F&F) settlement process which typically takes around 30–45 days. This difference between legal requirements and current workplace practices creates compliance challenges. Delays caused by the pending asset returns, notice pay calculations, multiple approval stages and absconding employees often slow down the settlement process which makes it difficult for the organizations to meet the prescribed timeline.
Framework: In order to overcome these challenges, this study proposes a RACE Framework which brings together four key stages those are Recovery & Reconciliation, Approval & Accountability, Conditional Compliance Execution, and Exit Closure Governance to support a faster and more compliant Full & Final (F&F) settlement process. It offers a structured way for the organizations to complete settlements within the statutory timeline while ensuring the regulatory compliance, clear accountability and effective operational control throughout the employee exit process.
Contribution: The contributions of this study come in two ways. In practical terms, it provides the first comprehensive framework for swift F&F settlement compliance in line with India’s four Labour Codes in a manner that is coherent with the legal framework of Section 17(2) and realistic in light of organisational realities. At a conceptual level, this study shows that it is possible to comply with the requirement of two days’ pay without foregone rights if the two-track principle is built into the exit process management system starting with the act of separation. From a theoretical perspective, this study fills a gap left open by the literature, which concentrates largely on legislative interpretation and workers’ rights issues.
KEYWORDS:
Code on Wages, Full & Final Settlement (F&F), Labour Compliance, Operational Governance, Recovery Governance, Notice Pay Management, Exit Governance, RACE Framework
The consolidation of 29 central labour laws into four Labour Codes which marks one of the most significant reforms in India’s labour regulatory framework in the recent decades. While the reforms were introduced with the objective of simplifying and streamlining the labour compliance, they have also created new operational challenges for the organisations particularly in the areas of employee separation, payroll administration and the compliance management. Among the many changes introduced under the Labour Codes, Section 17(2) of the Code on Wages, 2019 is one of the most significant for the employers. It requires organisations to pay all the wages due to an employee within the two working days of separation, regardless of whether the employee resigns, is dismissed, retrenched or removed from service. This marks a major shift from the traditional Full & Final (F&F) settlement process followed by many Indian organisations where the settlements often take 30 to 45 days to complete. As a result, the employers need to rethink and streamline their separation and payroll processes to ensure a timely compliance with the new legal requirement. Historically, the organisations have taken 30–45 days to complete Full & Final (F&F) settlements because the process involves several essential operational steps. These include reconciling attendance and leave records, recovering company assets, calculating notice pay, obtaining the approvals from HR, finance and reporting managers, and processing statutory dues and other terminal benefits, many of which follow a different legal timeline. Although the Code on Wages has introduced a much shorter deadline for wage payments after separation, these operational activities have not disappeared. As a result, the real challenge for the employers is not simply complying with the new legal requirement but redesigning their existing the F&F processes so they can be completed accurately within the much shorter timeframe.The challenge becomes even more complex because organisations must comply with multiple Labour Codes at the same time. While the Code on Wages, 2019 requires the wages to be paid within two working days of an employee’s separation, other Labour Codes impose additional obligations that follow different timelines. For example, the Industrial Relations Code, 2020 introduces specific provisions relating to the employee separation including cases such as absconding employees and notice period management. Similarly, the Code on Social Security, 2020 governs the payment of statutory benefits such as gratuity and provident fund which each of it has its own prescribed timelines.
As a result, the employers are required to manage several interconnected compliance requirements simultaneously while ensuring that every legal obligation is completed accurately and within the timeline specified under the respective law.
Existing research on India’s Labour Codes has largely focused on their legal provisions and broader policy implications (Dubey, 2020; Chaudhary & Remesh, 2021).However, there is a limited research on how organisations can practically implement these reforms in their day-to-day operations. Important aspects such as redesigning Full & Final (F&F) settlement processes, establishing the effective governance mechanisms, coordinating across HR, finance, payroll and business teams, and managing compliance risks have received little scholarly attention. This gap is particularly important from a practitioner perspective. How can organisations meet the statutory requirement of paying the wages within two working days while simultaneously managing the recovery claims, notice pay adjustments, approval workflows and the statutory benefit obligations?
This paper addresses this gap by proposing the RACE Framework – Recovery & Reconciliation, Approval & Accountability, Conditional Compliance Execution and Exit Closure Governance. This framework provides a practical approach to manage the Full & Final (F&F) settlements within the statutory timelines by aligning the legal requirements with operational processes while ensuring governance, accountability and compliance.
| Author(s) & Year |
Focus Area | Key Contribution | Limitation / Gap Left |
|---|---|---|---|
| Dubey (2020) |
Code on Wages, 2019 | Analyses revised wage definitions and their governance implications under the new code | Does not extend analysis to operational or implementation challenges |
| Chaudhary & Remesh (2021) |
4 Labour Codes Workers’ Rights | Critiques the four-code consolidation from a workers’ rights and employment regulation perspective | Stops short of addressing practical compliance and process realities for employers |
| Malathi (2026) |
HR Implementation Challenges | Most recent academic work acknowledging that the real difficulty lies in operationalising the codes, not reading them | Does not propose a structured governance or operational framework |
| Ascent HR (2025) |
Industry Practice F&F Compliance | Confirms that the two-day F&F requirement is operationally unmet across a large segment of Indian employers | Industry report; lacks academic rigour and framework-level analysis |
| Parker & Nielsen (2011) |
Responsive Regulation & Compliance Theory | Argues that durable compliance requires statutory intent embedded into operational workflows, not treated as a downstream check | Developed in a Western regulatory context; not applied to Indian labour compliance |
| Krawiec (2003) |
Cosmetic Compliance | Demonstrates that rule-following programmes without operational integration produce surface adherence that fails under real pressure | Does not address multi-timeline or payroll-specific compliance scenarios |
| ILO (2024) | Wage Protection Standards | Situates timely wage payment within the decent work framework; notes effectiveness depends on enforcement mechanism strength | Does not address India-specific multi-code compliance or operational design |
| Malik (2019) | Employment Contracts & Notice Pay | Notes that Indian employment contracts routinely embed notice pay recovery clauses | Analysis predates the four-code regime; does not address interaction of contractual clauses with the new statutory deduction ceiling |
| Pocket HRMS (2026) |
Industry Practice – F&F Settlement | Confirms most organisations continue to treat multi-timeline obligations as a single bundled F&F event | Practitioner guide only; does not propose any framework to resolve the compliance failure this practice creates |
Note: Note. Comparative statutory reference: The UK Employment Rights Act 1996 and Singapore Employment Act (Cap. 91A) are referenced in Section 5 as comparative design precedents. Both statutes treat wage payment and recovery actions as legally independent obligations a deliberate legislative separation that informs the two-track model proposed in this paper. The Payment of Gratuity Act, 1972 and the Code on Social Security, 2020 are analysed as primary statutory sources in Section 3.3.
Despite the growing importance of a timely Full and Final (F&F) settlement under India’s four Labour Codes, no published study has proposed an operational framework to support the rapid compliance. A question remains unanswered: how can organisations simultaneously comply with the wage payment requirement under the Section 17(2), safeguard their recovery rights, manage notice pay adjustments within the prescribed statutory limits and coordinate with the approvals across multiple functions within a two-working-day timeframe? This study seeks to mitigate this gap by proposing a structured framework for the rapid and compliant F&F settlement.
This study uses a doctrinal research methodology, its primary objective is to develop an operational and governance principles from statutory provisions rather than test hypotheses through empirical methods (McKerchar, 2008). The doctrinal approach involves a detailed examination of the primary legal sources, including statutes and their relevant provisions.
The analysis was carried out in three stages.
All statutory materials used in this study were obtained from the India Code, the official repository of Indian legislation maintained by the Ministry of Law and Justice, Government of India. The scope of the research is limited to the key provisions of the Labour Codes which is relevant to the F&F settlement. State-specific regulations and the sector-specific requirements are beyond the scope of this study.
As per Section 17(2) of the Code on Wages, 2019, employers are to pay wages within two working days of separation of an employee, whether due to resignation, dismissal, retrenchment or any other mode of termination. This obligation is specific to the “wages” as defined under Section 2(y), which broadly covers basic pay and dearness allowance but not all components of a Full and Final (F&F) settlement. Certain terminal benefits, such as gratuity and specific reimbursements continue to be governed by the separate statutory provisions and timelines.
Section 18 specifies the deductions that may legally be made from the wages. Another practical challenge arises from Section 18(3), which restricts total deductions in any wage period to 50 percent of the wages payable. This provision creates difficulties in cases of short-notice resignations, where the amount recoverable towards notice pay or unreturned company assets may be higher than the wages payable to the employee. As a result, employers cannot recover the entire amount through the Full & Final (F&F) settlement alone and may need to use alternative recovery methods while ensuring compliance with the statutory requirements.
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