Code on Wages 2019: Soon, you will get full and final payment just 2 days after you leave job

It usually takes about a month to get your full and final payment after you leave a job. However, this could change soon. According to the Code on Wages, 2019, notified on August 8, your employer will have to pay all your wages within two days after your last working day.

What the Code says on making the full and final payment
Wages under the Code is defined as all remuneration whether by way of salaries, allowances or otherwise. This includes – basic pay, dearness allowance and retaining allowance, if any. However, it excludes certain specified compensation items such as value of housing accommodation, conveyance allowance, leave travel allowance etc. If the specified exclusions other than gratuity payable, retrenchment compensation, other retirement benefits, ex-gratia paid on termination exceeds 50 per cent of the total remuneration, then the same will be added to the wages, according to the Code.

The value of remuneration in kind, for example employee stock option plan (ESOP) payable to employee, will be included up to 15 per cent of total wages. With regards to payment of full and final payment after an employee quits, the Code on Wages, 2019 says, “Where an employee has been – (i) removed or dismissed from service; or (ii) retrenched or has resigned from service, or became unemployed due to closure of 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.” Let us say your last working day in an organisation is November 20, 2019. Your employer would have to pay wages payable to you as mentioned by November 22, 2019.

What are the current rules?

Wages in the current Act is defined as follows. Puneet Gupta, Director, People Advisory Services, EY India explains, “Wages under the Payment of Wages Act, 1936 means total remuneration paid except for the specified exclusions under the Act. These exclusions are bonus paid which is not the part of the terms of employment, value of any-house accommodation or supply of light, water, medical attendance, or any service excluded from computation of wages, any contribution paid by the employer to provident fund or pension fund, any travelling allowance or value of travelling concession, gratuity payable on termination of employment.”

At present, since there is no clarity regarding the time line for settlement of full and final payments, companies have their own policies. “Under the current Payment of Wages Act, 1936 there is no specific time limit for making full and final settlement payment on resignation of an employee,” explains Gupta. However, for cases such as dismissal and retrenchments, the deadline to make final payment are governed under the Payment of Wages Act, 1936. “The current Act covers only the specified nature of termination of employees whose earning wages does not exceed Rs 24,000 per month. This wage amount is revised by the government on the basis of Consumer Expenditure Survey published by the National Sample Survey Organisation”, says Gupta.

Saraswathi Kasturirangan, Partner, Deloitte India says, “Under the payment of Wages Act, 1936, the settlement of wages will be made within two working days only if the services are terminated by the employer or are terminated due to closure of establishment. It is silent on timeline for making payment in case of resignation by the employee.”The timeline to make payment of wages under the Act is as follows:

Nature of termination Timeline
Termination of employment by the employer Before expiry of second working day from the date of termination of employment
Termination due to closure of establishment Before expiry of second working day from the date of termination of employment
Any railway, factory and industrial or other establishment having less than 1000 persons employed Before expiry of seventh day from the last day of wage period
Any railway, factory and industrial or other establishment having 1000 or more persons employed. Before expiry of tenth day from the last day of wage period

(Source: Deloitte India)

What Code on Wages, 2019 means for employees

The Payment of Wages Act, which is in force now, is silent on many issues like the settlement of the full and final amount in case of resignation. Once the Code on Wages is implemented it is likely to bring in more clarity and better compliance.

Gupta says, “Code on Wages, 2019 seeks to universalise the laws related to payment of minimum wages and timely payment of wages to the employees. The previous labour laws were silent on various issues such as time limit on making final payment in case of resignation, removal and so on.”

Other than quicker settlements, the Code will also bring under it a wider class of employees. “Code on Wages, 2019 has widened the applicability to a wider class of employees. With stringent provisions on penalties, compliance on labour matters by employers is expected to be high. In short, the provision of early settlement of dues (within two days on resignation), increased coverage by extending the provisions to the unorganised sector, disclosure requirement for specified cases of domestic workers and increase in penalties for non-compliance by employers will all go a long way in providing a conducive labour regime,” says Ms. Kasturirangan.

The catch
However, one must remember that though the Code has been passed by the Parliament, the date from which it will become applicable is yet to be notified by the government. Ms. Kasturirangan says, “Do keep in mind that though the Code on Wages, 2019 has been passed by the parliament, various procedural rules, forms, necessary for its implementation have not been notified yet. The preliminary draft rules have been uploaded on the website of Ministry of Labour and Employment on November 1, 2019 for inputs of various stakeholders and public. The date of actual implementation of code is likely to be notified once the rules for the code and other details such as floor wages are finalised and notified to ensure smooth implementation of the Code.”

Source:- indiatimes